Investment Dynamics in Poland

Presentation of EIB report

Warsaw, February 27, 2017

Bas B. Bakker

Senior Regional Resident Representative

for Central and Eastern Europe

Investment in Poland has not seen a clear

trend

2

Investment rate

(percent of GDP)

15

16

17

18

19

20

21

22

23

24

25

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

As increase in government investment…

3

Government investment

(percent of GDP)

0

1

2

3

4

5

6

7

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

EU accession

…was offset by a decline in business

investment.

4

Business investment

(percent of GDP)

8

12

16

20

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

Q4’2015-

Q3’2016

0

1

2

3

4

5

6

7

IRL DEU ITA PRT BEL ESP AUT CHE FRA NLD DNK LTU HRV GRC FIN SWE POL LVA SVN NOR CZE ROU BGR EST SVK HUN

Compared with other European countries, government

investment is relatively high …

(it has been cut in many other countries)

5

Government investment in 2015

(percent of GDP)

Note: For BGR and HRV data for 2014.

0

2

4

6

8

10

12

14

16

18

GRC ITA PRT POL NLD FIN SVN LTU DNK DEU HUN HRV SVK FRA NOR EST BGR ESP AUT ROU BEL LVA CZE IRL SWE CHE

…while business investment is relatively

low

6

Business investment in 2015

(percent of GDP)

Note: For BGR and HRV data for 2014.

The gross investment rate of non-

financial corporates is near record lows

7

Non-financial corporations investment

(percent of GVA)

15

20

25

30

35

40

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

Q4’2015-

Q3’2016

Why is business investment so low?

Is return on investment low?

Are profits paid out as dividend instead?

Are firms over-indebted?

Is demand too low?

Other factors?

Preliminary thoughts—will be topic of IMF Article

IV mission in Spring.

8

The return on capital has been rising

9

Return on capital employed and return on equity in non-financial corporations

(percent)

0

5

10

15

20

25

30

35

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Gross Return Before Tax on Capital Employed

Net Return After Taxes on Equity

And the profit share is near two-decades

high

10

Gross profit share of non-financial corporations

(percent of GVA)

30

35

40

45

50

55

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

Q4’2015-

Q3’2016

There has not been much increase in

distributed income

11

0

1

2

3

4

5

6

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

Income distributed to residents

Income distributed to non-residents

Distributed income

(percent of GDP)

The bulk of increased profits have been

retained

12

Saving and reinvested earnings on FDI in non-financial corporates

(percent of GVA)

-10

0

10

20

30

40

50

60

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

Gross saving

(reinvested earnings on

domestic investment)

Distributed income

Reinvested earnings on FDI

-10

10

30

50

70

90

110

130

150

Debt of non-financial corporations is low,

both in terms of GDP….

13

Gross debt-to-GDP ratio of non-financial corporations

(percent)

2003

2015

Note: For LVA data for 2004 and 2015.

245

0

200

400

600

800

1000

1200

1400

1600

1800

…and in terms of debt to income.

14

Gross debt-to-income ratio of non-financial corporations

(percent)

Note: For LVA and LTU data for 2004 and 2015; for BGR, HRV and ROM.

2003

2015

3190

One factor that might hold back investment is

slow growth in export markets

15

0

2

4

6

8

10

12

2000 2002 2004 2006 2008 2010 2012 2014

Dynamics of exports of goods and services

(percent y/y, 5-year rolling average)

Poland

World

Another factor is less incoming FDI

16

-2

0

2

4

6

8

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

FDI inflow

(percent of GDP)

FDI other than reinvested earnings

Reinvested earnings on FDI

Economic Policy Uncertainty (EPU) and VIX Index

(Index values)

Global policy uncertainty might also play

a role

17

0

10

20

30

40

50

60

70

0

50

100

150

200

250

300

350

400

450

500

Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17

Global EPU-PPP adjusted

European EPU

VIX (rhs)

Brexit vote

US elections

Capital stock per capita in Poland is still

relatively low

18

Investment needs remain large: infrastructure

less developed than in Western Europe

19

Highways

Colored lines denote railways with maximum speed above 200 km/h

Railways

And housing conditions need

improvement

20

Capital accumulation will face headwinds

in the future

Tight labor market will increase wage pressure,

reducing corporate profits

The next EU funds perspective will most likely

be less generous for NMS

21

EU funds are a significant contributor to

capital accumulation

22

0

5

10

15

20

25

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Sources of capital accumulation in Poland (percent of GDP)

o/w capital and current transfers from European Commission Domestic investment

Transfers from European Commission Germany (until 1990 former territory of the FRG)

Investment rate in Germany

Thank you