6 minutes

Four shocks that are changing the economy

We already know the results of the Polish economy for 2022 – according to recently published data, it grew by 4.9%. At first glance, this is a very good result, especially considering the circumstances, particularly the ongoing war in Ukraine. However, upon closer inspection of the growth structure, the picture is not so optimistic. A whopping 2.9 percentage points out of the 4.9% total was due to inventory growth. This is not something that translates into the welfare of the population, but rather reflects the adjustments taking place in the economy.

In the current times, GDP data has limited informational value and should be perceived only as a kind of tip of the iceberg floating in the water. Equally important and interesting is what is happening in the part of the iceberg that is below the surface. And a lot is happening – there are many important processes that will determine the economy’s results not only in this or next year. I am referring to the adjustments taking place as a result of four shocks experienced by the Polish economy. Three of them are the consequences of recent events: the pandemic, the war in Ukraine, and geopolitical changes. The fourth shock is a demographic shock, which has been with us for a long time but has now entered a new phase.

One of the external shocks caused by these factors is the energy crisis. Energy is the foundation of the functioning of societies and economies. Meanwhile, the war in Ukraine has forced a radical reorientation of coal, oil, and gas supply directions to become independent of Russia. As this did not affect only Poland, it caused enormous disruptions in the international market, whose visible sign was and still is high price volatility. This was accompanied (and will be accompanied in the coming years) by concerns that a particular raw material might run out altogether.

The second significant shock is the geopolitical shock: growing tensions between the West and Russia, but also between the West (mainly the US) and China. They make the world start to reorganize itself, so to speak. The essence of this shock is the departure from global cooperation and co-operation (manifested in the form of the turbo-globalization era) and the transition to competition and rivalry. Who will ultimately compete with whom – and in what form – is not yet entirely clear. It is known only that the main confrontation will take place on the US-China line, but every part of the world will be affected by the changes resulting from it. This shock has introduced a new dynamic in the processes of business organization; concepts such as geo-economics (subordination of economic processes to politics) or friend-shoring (transfer of value chains to countries considered friendly) have appeared.

Thirdly, there is the technological shock: the pandemic and the energy crisis have accelerated technological transformation towards digitization, the use of artificial intelligence, green technologies, and automation and robotics. This leads to the disruption of the continuity of markets for individual products, and with it, new winners and losers emerge among companies. How this process works could be seen in the case of Nokia some time ago – the former leader in the mobile phone market, which lost not to its direct competitors, but to an entirely new product, the smartphone. Now, similar cases will occur on a much larger scale (e.g., in the automotive industry), affecting entire production chains and thus hundreds of companies associated with the final suppliers of specific products.

The shocks described above have a universal character and affect all countries of the world to a greater or lesser extent. The fourth shock, although experienced by some other countries as well, has an internal character. This is a demographic shock, manifested by the rapid aging of our society and changes in the ratio of working to non-working people. Although the change in demographic trends – the shrinking number of people of working age – has been with us for quite a few years now, we are currently experiencing a new phase of this shock. In principle, all free labor resources have already been exhausted (there is still little potential for growth in the occupational activity of some social groups), which is best evidenced by one of the lowest unemployment rates in the EU. An additional, new element of the shock is also the disruptions associated with the inflow (women) and outflow (men) of immigrants from Ukraine.

Why are these shocks so important for economic processes? From a practical point of view, they signify strong changes in relative prices in many dimensions: the price of labor compared to capital, the price of raw materials compared to the price of final products, the price of one commodity in relation to another, the price of one currency in relation to another (i.e., changes in exchange rates), etc. This, in turn, means that we have disturbances in profitability in practically all forms of doing business, some industries (companies) are in plus, while others are in minus. This process is of great importance for investment activities that will lead to structural changes in the economy.

Changes in the labor market will also accompany this last process – we will be dealing with a process of rapid erosion of demand for certain skills and competencies. At the same time, there will be a demand for skills and competencies that are not yet available on the market, or are available in limited quantities.

Over the next few years, these ongoing changes will result in a changed structure of our economy. What it will be, especially to what extent it will push our country up the ladder of technological and productive advancement, will also depend on economic policy. Its role in this process is very important. Above all, it is about ensuring conditions for the free flow of resources in the economy, so as not to hinder adaptive processes. The second key element is the issue of available skills and competencies in the country. In this regard, there is a need for good policy of lifelong learning, including the “second chance” policy (supporting processes of retraining, changing professions). The third element is to ensure what is necessary for the development of the economy of the future, namely access to clean energy. In each of these areas, there is still much to be done.


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