EU Democracy Clash Obscures Poland’s Growth Outlook, EBRD says

(Bloomberg) -- Poland’s clash with the European Union over democratic standards must end soon to ensure sustained economic growth in the near term, according to the chief economist of the European Bank for Reconstruction and Development.

The EBRD cut its growth forecast for the EU’s largest eastern member a touch to 4.9% for this year and kept its outlook for 4.8% in 2022, according to a report published Thursday.

But Chief Economist Beata Javorcik said the predictions “are subject to big uncertainty” with the European Commission having frozen approval of 36 billion euros ($42 billion) in pandemic aid earmarked for the country of 38 million.

Whether the funds will be released depends on negotiations between Brussels and Poland’s nationalist government, which has dragged its feet on implementing rulings by the EU’s top court demanding it reverse parts of a sweeping judicial overhaul that the bloc says is undermining the rule of law.

“We are optimistic in the sense that it is in the interest of both sides to resolve it and that’s why we have not incorporated the issue in the forecast,” Javorcik said in an interview this week. “At the same time, however, the conflict poses potential risk and is a huge concern.” 

The Finance Ministry has said the EU funds could add 0.4 percentage points to growth a year. Javorcik said that delayed access could have other, hard-to-measure consequences, including include Poland becoming a less-favorable investment environment for both local and foreign businesses.

It may also undercut a source of funding for projects that may bring more growth further down the road, particularly in the global push to cut greenhouse gas emissions. That’s a particular hurdle for a country that is one of the EU’s most dependent on coal-fired power plants.

“The funds aren’t only about financing, then as they are designed to put the country on a desired growth path,” she said. “Without EU financing and without the government support for green innovations, Poland, producing above two thirds of its energy from coal, can’t count on keeping its attractiveness as a manufacturing hub.”

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