Polish Economy Suffers Amid Geopolitical Risk and Inflation

Over the last few months, Poland has experienced civil tension due to recent government policy changes. On June 4, 500,000 people marched through the streets of Warsaw, marking the 34th anniversary of elections that led to Poland’s non-violent exit from communism. “But the mass showing was no ritual commemoration; it was both a celebration of the past and a protest against the current Polish government’s effort to return the country to autocracy,” reads an article by?The Atlantic.

On June 7, Polish President Andrzej Duda proposed urgent amendments to a law on Russian influence, which he signed the week after it drew U.S. and European Union criticism. “Critics point mainly to the party’s step-by-step takeover of the judiciary and media,” reads an article from the?Associated Press. “And fear that Law and Justice could eventually force Poland to leave the 27-member European Union.”

A mixture of new limits on abortion rights and high inflation triggered mass protests across Poland. “Poland’s government blames Russia’s war in Ukraine and the COVID-19 pandemic, but economists say spending policies have accelerated spiraling prices,” the article reads.

The protests as result of government changes weakens checks and balances, said David Kinzel , vice president of structured credit and political risk at Marsh, LLC (Denver, CO) during FCIB’s July?Global Expert Briefing.?“On top of that, there’s an estimated 1.5 million Ukrainian refugees living in Poland now with several of the 8 million that have come through the country. This has created more changes in Poland's economy.”

Poland’s importation of Ukrainian grain has caused financial difficulties for local farmers and grain companies, sparking more protests. As a result, European Union countries, Poland, Slovakia, Hungary, Romania and Bulgaria will extend their ban on Ukrainian grain imports to protect their farmers’ interests, their agriculture ministers said on June 19. “Food can still move through their land to parts of the world in need after Russia pulled out of a deal safeguarding Black Sea shipments,” reads an article by?PBS.

Poland’s proximity to and continued support of Ukraine garners political risk of war given that they are a part of The North Atlantic Treaty Organization (NATO). “When the Russian-Ukraine conflict started, most of the insurers were completely off risk in those countries,” Kinzel said. “As of late, the concern for political risk for Poland has died down and a lot of insurers are more comfortable insuring customers based in Poland, but it is still something credit professionals should pay attention to, especially if they have a lot of receivables in Poland.”

Poland’s economic growth is projected to decelerate to 0.7% in 2023, down from 4.9 % last year, according to a report by?The World Bank. The report shows Poland's GDP growing by 2.6% in 2024 and 3.2% by 2025.?Trading Economics?forecasts that GDP in Poland is expected to reach $693 billion by the end of 2023, around $710.32 billion in 2024 and $733.05 billion in 2025.

Increased energy and food prices continue to weigh on household demand in 2023 and will severely impact poorer regions, who devote 50% percent of their monthly spending on food and energy, per The World Bank. “The share of the population at risk of anchored poverty is expected to remain elevated at 1-2% above 2019 levels.”

Customers in Poland have averaged 21.1 days beyond terms, with 73% of credit professionals saying payment delays are staying the same and 27% saying they’re not experiencing payment delays, per the FCIB Credit and Collections Survey. The most common cause for payment delays is billing disputes and cash flow issues (both 50%).

What Credit and Collections Survey respondents are saying:

• “When you experience a dispute with the client, don’t continue working until you scrub the whole scope of work from the beginning of the contract until the date of dispute. Then agree before project kick off.”
• “It is important to know customer's payment process to avoid misunderstandings or delays due to administrative issues.”
• “Do due diligence for all prospect customers, especially to those small-medium privately held companies with no financials or credit reports. Check the profile and validate like business address, company domain e-mail address, etc. and start with small, reasonable credit line and reasonable payment terms.”
• “Obtain financial statements on your customers and backstop sales with credit insurance.”

The?Credit and Collections Survey?is now open. It covers France, India, Japan and South Korea. You will earn ICEU/Participation credit for your input. Be sure to share the link with your credit and collections network.