This article is a part of Poland Unpacked. Weekly intelligence for decision-makers
Poland’s economy has been generating mostly positive data of late. This time is no different. Statistics Poland (GUS) reported that industrial output rose by 5.1% year on year in July. In the most important part of industry – manufacturing – it was up 4.4% year on year. That was somewhat weaker than in June, when growth reached 6.2%, but still a very strong result.
This confirms the strength of manufacturing, which we wrote about recently, particularly given that economic activity in the euro area remains weak. At the same time, Polish companies in many industries are facing very strong competition from Chinese manufacturers.
Interactive chart One element, however, does not fit the picture of a Polish economy gathering speed. That is construction. According to GUS data, construction and assembly output fell by 2.2% year on year in July. This was a significant negative surprise, as output had risen by 5.2% in June. It therefore seemed reasonable to believe that, after many false starts, the long-awaited recovery in construction was finally gaining lasting momentum.
All three segments of construction performed poorly in July. In building construction, which includes residential construction, output fell by 1.8% year on year. In civil engineering, it was down 0.2% year on year, while in specialized construction activities it plunged by 6.4%.
Overall, construction and assembly output from January through July was 2.5% lower than a year earlier.
XYZ’s take
So what is behind the weakness? Infrastructure investment is the biggest disappointment. This is where funding from the National Recovery and Resilience Plan (KPO) and the EU’s regular budget is flowing. Yet the impact of this wave of money is still difficult to discern in construction and assembly output data.
There are several reasons for this. First, the projects currently being developed are more complex than those of the past. Put simply, instead of adding more kilometers of roads, an increasing share of the investment pipeline consists of complicated energy projects, such as the nuclear power plant, and transport projects, such as the Centralny Port Komunikacyjny (CPK, or Solidarity Transport Hub). This naturally lengthens the investment process and makes projects more vulnerable to delays.
Public procurement rules are a separate problem. A good example is the case involving the contract to build Rail Baltica, which XYZ has covered extensively. In short, the Mirbud-Torpol consortium was excluded from the tender for Poland’s largest-ever rail contract, covering the Białystok-Ełk section, with a value expected to exceed PLN 4.5 billion (EUR 1.05 billion). The reason? Years ago, Mirbud was fined PLN 15,000 (EUR 3,500) for an environmental violation and failed to disclose the penalty in the documents submitted with its bid. The case is now before the courts, and the protracted dispute could delay the start of the investment.
To speed up the largest infrastructure projects, the government proposed a special law several days ago. Given the problems outlined above, the direction appears justified, although the effectiveness of the new measures will only become clear with time.
The funds earmarked for transport, energy and defense infrastructure are substantial enough that, sooner or later, they should translate into a clear revival in construction and assembly output. For now, however, there remains a conspicuous gap between promises of an investment boom and the hard data.