Plenty of Haircuts in Poland, but no Financial Write Offs

Leaving a storm-threatened UK for a balmy, late summer day in Warsaw seemed the perfect metaphor for the comparative strengths of the two economies. Poland continues to be a minor but extremely creditable financial miracle.

Amid the sea of troubles afflicting the whole of the rest of Europe, Poland has been an island of growth, maintaining GDP growth every quarter since the global recession kicked off in 2008. The latest figures for Q2 2011 showed a heady annualised increase of 4.3%. Chancellor Osborne would kill for anything near that level, indeed for any consistent growth at all.

The Polish miracle is built on a number of pillars. Currently the strongest is buoyant domestic demand and strong consumer spending, both driving good service sector numbers well illustrated by the opening of 3,500 new hairdressers and 3,250 new restaurants in the first half of 2011 alone. Altogether an amazing 151,000 new businesses were registered just in this busy period alone.

Retail spending is growing rapidly, up by 10.9% year on year in June and by 8.2% in July, boosted by Poland’s reputation as a prime shopping destination. 79% of foreigners cited shopping as the prime reason for their visits in 2010. A further boost is expected ahead of next year’s European soccer championships being co-hosted by Poland, as fans rush to upgrade their televisions and update their kids’ replica strips. How UK retailers battling with austerity and government cuts must wish for the same sort of consumer environment.

Good use is also being made of €67bn of developments funds allotted by the European Union for the years 2007-2013. One cynical local talked of Poland being Europe’s biggest building site and clearly not all of this is going well, judging by the third motion of no confidence tabled unsuccessfully against infrastructure Minister Cezary Grabarczyk in Parliament last week.

Another positive is the Polish banking sector. Profits declared by banks totalled zl.7.7bn (£1.5bn) in H1 2011, some 50% higher than the year before. At this rate, they may well break the previous record of zl.13.9bn (£2.75bn) recorded in 2008. A conservative approach to lending has served them well, indeed recent research revealed three of Poland’s banks as the fourth, fifth and sixth safest banks in the CEE region. So successful have many local banks been that their struggling foreign parent companies are now looking to raise cash by selling out.

Professionals talk of some threats on the horizon, not least a strong dependence on their faltering German neighbours. A quarter of Poland’s exports go to Germany. The general slowdown in major developed and emerging economies around the world is a broader concern. Inflation is another worry, with wage growth expected to be as much as 6% in the third quarter.

But all seemed prosperous and confident in busy restaurants like Na Zielnej, proudly boasting that it is the only restaurant in Warsaw using the most refined local products recommended by the ironically-named Polish Slow Food Organization. Chopin Airport was also mobbed as Poles headed away for late holidays, both long haul and in hotter climes further south in Europe.

Maybe all those new hairdressers are tapping into the new found wealth of the hordes of plumbers and builders returning from their UK exile to take advantage of the narrowing gap between imploding British disposable incomes and growing Polish affluence.