Although in 2017 the positive balance in Polish trade was lower than in the two previous years, we can still talk about structural factors favoring the maintenance of a surplus in Polish foreign trade.
Preliminary data, published in February by the Polish Central Statistical Office (GUS) and the Eurostat, indicate that in 2017, Poland maintained its positive balance in foreign trade. According to the Eurostat estimates, in the last year the surplus amounted to EUR0.5m, compared with EUR2.4bn and EUR4.7bn, respectively, in 2015 and 2016.
A positive balance in foreign trade is currently typical of all the economies of the Visegrád Group countries (Czech Republic, Hungary, Poland and Slovakia). The Czech Republic has been systematically recording a surplus of exports over imports since 2005, while a positive trade balance has been recorded since 2009 in Hungary, since 2012 in Slovakia, and since 2015 also in Poland.
In Polish foreign trade an improvement in the ratio of exports to imports has been visible since 2012. Over the past six years, the value of Polish exports grew at an average rate of 7.1 per cent, while the value of imports grew at the rate of 6 per cent. During this period, the increase in Polish exports was among the highest among the EU member states (only Cyprus recorded a higher rate of export growth). The strengthening of Polish exports occurred amid economic conditions in international trade, that were not always favorable, and the higher rate of growth of the Polish economy with regard to most Western European countries did not lead to a deterioration of our trade balance.
The development of a trade surplus has been supported by structural factors. They resulted both from changes in the structure of the Polish economy (including foreign trade), as well as from the differences between the Polish economy and the countries of Western Europe. This primarily involves the lower income elasticity of imports (the ratio of import growth to the GDP growth) in Poland in comparison with our main trading partners, which has additionally decreased in recent years in relation to the levels observed in the first decade of the 21st century. The second important factor supporting the positive balance in our trade is faster rate of increase in unit value indices in Polish exports than in imports.
The factor which in recent years caused Poland’s export growth to be higher than the growth in imports is the higher income elasticity of imports of country’s main trading partners from Western Europe. This, along with an increase in GDP in highly developed EU economies, has contributed to a faster growth in demand for Polish products, while the demand for foreign products in Poland is relatively lower. Thus, in the countries of Western Europe, the economic growth is now causing a proportionally higher increase in imports than the one observed in the Polish economy.
For example, in the first three quarters of 2017, the income elasticity of imports in Germany was at the level close to 2.5, while in Poland it was 1.5. These differences result from different structures of domestic demand. In the countries of Western Europe, including Germany, the most import-intensive categories, such as investment expenditures and consumer durables, are more important in overall demand. In 2016, investments accounted for 18 per cent and consumption of durable goods accounted for only 4 per cent of GDP in Poland, while in Germany these categories accounted for 20 per cent and 6 per cent, respectively.
It should also be noted that although the decline in income elasticity of imports after the crisis of 2008–2009 was a universal phenomenon, it was stronger in Poland, primarily due to the weakening inflow of foreign direct investment.
The faster growth of unit-value indices in exports than in imports is very important for the development of the favorable situation in Poland’s balance of trade. While the rising unit-value index in exports reflects the increasing importance of more expensive goods, i.e. products that are increasingly technologically advanced, these changes are slower in the case of Poland’s imports. The decrease of the unit prices in imports is partially due to the relatively high share of developing countries of Asia, which provide a cheap source of supplies. For example, in 2017 China accounted for 8 per cent of imports to Poland (according to Eurostat data indicating the country of dispatch of goods), which is more than the average in the EU countries (7.3 per cent in 2017).
Enterprises in Poland, mainly local branches of large international companies, are increasingly relying on components from developing Asian economies. The components for capital goods were one of the fastest growing categories in imports from Asia. The integration of Polish enterprises within international value chains has contributed to a significant development of the supply network. Apart from Germany, China is currently the most important supplier of components to Poland (in 2017, it accounted for 20 per cent of imports in this category), while South Korea remains the fifth largest supplier. The share of Asian countries is increasing primarily at the expense of supplies from the European countries.
This is probably the result of the pursuit of higher price competitiveness for the products of international corporations that are produced in their Polish branches and are intended for the European markets (as a result of replacing more expensive components with cheaper ones). As a result of these trends, the level of unit-value indices in the imports of components for investment goods has remained virtually unchanged in recent years.
The growing importance of Asian economies in imports to Poland leads to an increasing geographical diversification of the trade balance. The rapidly increasing surplus in trade with the European Union countries is accompanied by a clearly growing deficit in trade with the developing Asian economies. The integration of the Polish economy within the international value chains that has taken place over the last two decades has had an effect on the strong diversification of the geographical structure of Polish exports and imports. While there was a steady increase in the importance of the developing Asian economies in imports (in 2017 their share increased to 12.4 per cent), the share of these countries in exports remains relatively low (2.7 per cent in 2017).
The growing imports from the Asian economies have in turn contributed to an increase in the trade surplus with the EU countries. According to the Eurostat estimates, in 2017 the surplus in trade with the EU countries amounted to EUR17.6bn, and the trade deficit with the remaining countries increased to EUR17.1bn.
Wojciech Mroczek is an economic expert at the Department of Statistics of Poland’s central bank Narodowy Bank Polski. The article does not represent the official position of Narodowy Bank Polski.