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Business
The Economist July 9th 2022
Will the lights go out for Polish business?
tibusiness bent of Law and Justice (pis), the populist party in power, will become even more pronounced as Poland prepares for parliamentary elections that will take place in the autumn next year. Economists disagree about which is the strongest of the multiple headwinds blow ing against business in Poland, though nearly everyone forecasts a recession this year. For Ignacy Morawski, chief econo mist of Puls Biznesu, a business daily, the macroeconomic picture is the biggest cloud for foreign investors. Consumer prices rose by 15.6% in June compared with last year, a level unseen in more than 20 years, and up from 13.9% in May, according to Poland’s statistics agency. Interest rates have shot up from 0.5% last October to 6%. That has squeezed borrowers as about 90% of loans to households and businesses are at variable rates. This in turn creates even more uncertainty, says Mr Morawski. The zloty, Poland’s currency, is weak, which helps exporters but makes the imports needed by producers pricier still. Adam Czerniak of Polityka Insight, a re search outfi t, thinks concerns over the rule of law and “economic patriotism” are the biggest worries for foreign investors, in particular those from eurozone countries. Since coming to power in 2015 pis has neu tered the judiciary and placed judges fi rm ly under the control of the government. It extols the virtues of “repolonisation”. Statecontrolled companies bought for eignowned banks (on a voluntary basis); the government is now targeting bank pro fi ts with a moratorium on loans. And pis tried to limit foreign investors to a stake of no more than 30% in Polish media fi rms. Last year foreign direct investment (fdi), both greenfi eld and other funding, was still strong owing to Poland’s well
trained labour force, relatively low wages and closeness to western Europe. fdi fl ows were up by 79% (see chart on next page) and the stock grew by a healthy 7.8% com pared with a slump by 2.7% for the entire European Union. This year fdi is set to de cline, though it is unclear how cold foreign investors’ feet will become. Since the start of the year investors have dumped Polish
stocks in droves. The wig20, the stock market index of the 20 largest companies listed on the Warsaw stock exchange, de clined by 28% from the start of the year to July 6th. Polish mutual funds are reporting redemptions, which means the wig20 is unlikely to make up lost ground soon. Mr Czerniak forecasts that the economy will be in recession in the second quarter. Poland’s manufacturing sector contracted for a second month in June, when Standard & Poor’s Polish manufacturing purchasing managers’ index fell to 44.4 from 48.5 in May, remaining below the line of 50 that divides growth from contraction. Like most of his colleagues Mr Czerniak expects a soft landing in which the heat is gently taken out of the economy and the unem ployment rate remains low. Business leaders are holding their breath. The government has in recent months stimulated demand with generous tax cuts, which is fuelling the infl ationary spiral. Adam Glapinski, the head of the central bank, recently said that the rate raising cycle is nearing the end, but he did not name a specifi c timeline. Foreign in vestors expect both infl ation and interest rates to stay high for some time to come and they do not anticipate that the war in Ukraine will come to an end at any time soon. On top of which pis is forecast to win the election next year, giving business lit tle hope of relief. n
Venture capitalism in Europe
A species reborn
BE RLIN AND S AN FRANCISCO
The downturn is unlikely to lay waste to the old continent’s tech unicorns
“N
one of my friends stayed in tech.” Fred Plais, the boss of Platform.sh, a cloudcomputing company based in Paris, still remembers vividly what happened in Europe in 2001. The fi rm he ran back then, an onlinesearch engine, closed down after the dotcom bubble burst—along with most of the other startups he knew. The story was much the same in 2008 as a result of the global fi nancial crisis. Euro pean technology fi rms again suff ered more than their American counterparts. Fears that the looming downturn and plummet ing tech valuations will once more hit harder in Europe than across the Atlantic were stoked on July 1st, when the Wall Street Journal reported that Klarna, a Swed ish buynowpaylater darling, was trying to raise fresh capital at less than a fi fth of its peak valuation of $46bn. Such stories notwithstanding, both Europe’s startups and its venture capital
ists look much sturdier than they have in the past, and much less reliant on foreign knowhow and capital. They may even weather the storm better than American counterparts this time around. To understand why, start by consider ing the boom. Last year was a smasher in Europe even by frenetic global standards. For the fi rst time, venturecapital (vc) in vestments on the old continent exceeded €100bn ($118bn) in a single year, reports PitchBook, a data provider. Startup valua tions rocketed accordingly, pushing the number of European “unicorns”, private fi rms worth more than $1bn, to nearly 150 today, about 13% of the world’s total. Al though Europe’s tech ecosystem is still only about a third as big as America’s in terms of vc investments, it has more than doubled in size since 2020. Some of this growth is a mechanical consequence of excess capital fl ooding
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