Poland builds diplomatic capital, but its economy faces difficulties

Poland has found itself taking centre stage in the global arena as the Russia-Ukraine war persists. As one of NATO’s most exposed frontline states, Poland has become a key route for the supply of weapons, ammunition, fuel and other assistance to Ukraine. The country has been at the forefront of taking the most hawkish approach towards Russia in the EU, with prime minister Mateusz Morawiecki pushing a radical plan to end Russian energy imports entirely, and pressing for an EU embargo on all Russian oil, gas and coal. 

Both prime minister Morawiecki and Poland’s president Andrzej Duda have jumped at the chance to position Poland as a key ally of western democracies, aiming to reset the country’s relationship with both the US and the EU, which were previously alienated by the government’s nationalist policies. 

Signalling Poland’s importance as an EU and NATO member state, US president Joe Biden’s only European stop outside Brussels since the war begun was to Poland. Where previously Germany and France would take the lead in driving EU unity in times of crisis, prime minister Morawiecki played a pivotal role in persuading Germany’s chancellor Olaf Scholz early on to make an abrupt change in Germany’s sanctions strategy against Russia. EU officials are now also temporarily holding back from raising rule of law issues with Poland, opening the floor for future EU discussions on Poland’s central role in reacting to Russia’s aggression. The European Central Bank has also extended financing agreements with Poland to support their efforts to defend the national currency against the fallout of the war. 

While diplomatic relationships have strengthened, the war risks damaging Poland’s strategic positioning as a trading nation. Over the past ten years, Poland has become an increasingly attractive base through which to run operations in the CEE region and the Baltics, as well as the wider EU. This is in part due to Poland’s tactical position at the crossroads for many important European and Asian supply routes, connecting key East-West and North-South trading routes. Concerted efforts by the Polish government to increase public investment in transport and infrastructure has also contributed. These strong fundamentals have fuelled Poland’s development into one of the fastest growing logistics markets in the EU. However, due to Poland’s proximity to Ukraine, the brakes have been pushed slightly, and introduced a significant level of uncertainty. Disruption is already being felt across all modes of transport — sea, air, rail, and road — but especially on land routes. 

On the upside, Ukrainian businesses and refugees relocating to Poland could provide a boost. Previously scolded by the EU on its handling of prior refugee crises, Poland has welcomed almost 2.5m Ukrainian refugees. The Polish government is encouraging businesses to employ Ukrainian refugees and is implementing new policies supporting the relocation of Ukrainian businesses to Poland. Amongst others, the Polish government has adopted a special bill on providing aid, simplifying employment procedures, opening employment services and extending social benefit schemes. 

However, the development of the war will determine the extent to which Polish companies — especially in the transport, logistics and construction sectors — will continue to be deprived of access to the male Ukrainian workforce, both during the war and thereafter.

Poland has positioned itself as the main link in the chain connecting Ukraine and the West. It has rightfully gained a prominent seat at the diplomatic table and is steering western discussions. Its ramping up in defence spending and generous intake of refugees will inevitably have consequences for Poland’s economy in the mid to long term. 

With its new gained diplomatic capital and strict proposals against Russia, all eyes are on Poland’s unique position in the war, as well as its prospects on the EU stage. With the trajectory of the war unclear, the one thing we can be certain of is continued uncertainty. This alone will make some investors wary, but Poland is continuing to strive to keep its fundamentals strong as an investment location.