Icebergs ahead for the economy – why is nobody getting nervous?

The world has officially entered recession. Germany has been in recession for several months now. EU Central Bank is thinking of quantitative easing (again) starting this autumn to counteract this. President Trump is engaging China in even more tariff struggles, banging his head against the wall even harder (the more he pushes the World to the brink of economic crisis to make the dollar more competitive, the more attractive the dollar appears to investors as they abandon emerging markets for safer investments i.e. the dollar). Yet every analysis I’ve seen so far claims that Poland is such a strong economy, that we may yet again become a green island in the sea of global recession. In my opinion this is not going to be that easy this time. Please find below some of the reasons why.

Comment: First of all, Germany is our biggest trading partner, whether the Minister of Economy likes it or not (as far as I remember none of the Ministers, whatever the party, liked it, but could never do anything about it), what happens in Germany impacts the Polish economy, in may cases even more strongly than what the Polish side does. Therefore ask yourself the question what happens when Germany starts counteracting the recession. Will they not try to reduce their dependency on export and focus more on internal spending? Will this adversely impact their imports? What happens if Poland’s major purchaser reduces the need to buy things?

Second of all, Poland is for the purposes of global analysts, still an emerging market. Therefore when two major powers attack each other economically, investors, although reluctantly will have to back both such powers and abandon more risky waters (i.e. emerging markets). Whoever wins the trade war, both China and the US will remain major economic powers and investing in their economies will still carry less risk than investing in emerging markets (which includes Poland). Therefore Poland, along with all the other countries in the region will pay the price for Trump’s trade war regardless whether we profit from it or not.

Third of all, everybody points to low unemployment as a factor contributing to the strength of Polish economy. However we still need to connect this to the fact, that Polish economy is currently (and has been for the past several years) dependent on immigrants (Ukraine, Byelorussia, Pakistan, India) therefore should anything happen to those people (e.g. should any of our neighbours offer them better wages) there would not be enough workers to service the economy. What is the use of producing goods, when you have no one to sell them with (shops need staff)? Will an expensive production line help your business if it is unmanned?

The fourth and final issue, is that everybody keeps pointing to the government 500+ program as a panaceum for all ills. True, giving people cash is a great (although insanely expensive) way to boost internal consumption – one of the pillars of economic growth. The problem with this is, that the positive effects are short-lasting – if you pump more money into a system with limited number of goods, these goods will soon increase in prices. This is called (in layman’s terms) inflation. Of course, the Statistical Office says that inflation is under control (statistically speaking: if bread is 25% more expensive, but luxury cars are 10% cheaper, it evens out right?) Well the problem here is that it does not even out, internal growth powered by public spending is a great way to kickstart your economy but a terrible way to maintain it. There are only two sources of cash for increased spending. You can either take money away from other parts of the economy (which will make it less competitive), or print more money (which will boost inflation). Therefore we can expect either higher inflation or a public spending collapse in a given sector (take your pick: public health, education, defense, self-government spending). None of these options will help Poland remain a green island.

I would very much like to be wrong about all of this, but can’t help but wonder if being optimistic, as everybody around me, is the best way to go. Why is nobody discussing the risks and dangers? Remember the old adage: “If everything is going your way, you’re walking into a trap”. We’re supposed to be preparing for the worst but expecting the best, not the other way around.

My thought were inspired

by this article: https://www.money.pl/gospodarka/dlaczego-polska-waluta-oslabia-sie-mimo-silnej-gospodarki-6420484176492673a.html