A historic vote
The polls announced a new victory for the PiS, in power since 2015. But it was finally the coalition of opposition parties led by Donald Tusk that won the election with 54% of the votes and 248 seats out of the 460 in the Polish Parliament.
This surprise victory is explained by an extraordinary voter turnout of 74.4%. Never since the fall of the communist regime in 1989 the Poles had mobilised so much for an election. The authoritarian excesses of the PiS in power have awakened the political consciousness of the inhabitants.
The Poles mobilised to defend the rule of law undermined. The perpetual confrontation that the Polish Government had with the European institutions also caused the PiS to lose part of its electorate, tired that Poland was always on the margins of the European Union.
With the return to power of Europhile Donald Tusk, who previously headed the Polish Government from 2007 to 2014 before becoming President of the European Council until 2019, the conflictual relations between Warsaw and Brussels will quickly subside.
Normalising relations
Rarely have the results of an election aroused so much enthusiasm among investors. In an unfavourable economic environment that caused almost all stock exchanges to fall, the Warsaw stock exchange rose by more than 10% in October. The Polish zloty also recovered against the euro (+4%).
Several factors explain the surge in Polish assets. The first is the 180° turn that Polish policy towards the European Union will take. The next Government will normalise its relations with European bodies. Poland will no longer block decision-making in the Union. On the contrary, it could become an engine of European integration.
The end of the political war between Warsaw and Brussels will unlock the currently frozen European funds. It is 36 billion € of European aid that should arrive in the coming months in Poland.
With this influx of money that will boost public investment, investors welcome the arrival of a Government that puts the economy before ideology, as was the case in recent years. This is all the more important for the Warsaw Stock Exchange as it is 60% of companies majority owned by the State.
Political barriers
In addition to restoring peaceful relations with the European Union, the opposition coalition that won the elections wants to cancel the anti-democratic laws put in place in recent years. It was the reform that reduced the independence of the judiciary that led the European Union to freeze certain financial transfers to Poland. It will also be necessary to dismiss the PiS personalities appointed in the media, public companies or the Central Bank to work on their party's behalf. But it will not be easy to unravel what has been patiently put in place over the past eight years.
The three parties of the winning coalition will first have to agree among themselves. In contrast, they do not have many points of convergence at the common goal of sending the PiS in the opposition and returning to the contested reforms. It will also be necessary to overcome the hostility of the President of Poland, a faithful PiS in office until 2025, which can considerably hinder the new Government's work. This undermining work has already begun. The Polish President has legally convened the new Parliament as late as possible and is holding back the formation of the next Government.
Economic challenges
The Polish economy, struggling since the decline in GDP in the second quarter, could recover in the coming months. With political change, investor and household confidence will improve, boosting domestic demand. The release of European funds will also provide a breath of fresh air. But we should not expect significant economic changes in the short term. Changing the laws and giving the country a new political direction will take time. The Polish economy is closely linked to German industry and will continue to suffer from the sector's difficulties. The end of cheap Russian gas has further weakened Poland's energy situation.
The country favoured coal to ensure its supply, which provides 70% of electricity production. This situation is not sustainable in the face of the challenge of global warming. It is also beginning to discourage some companies wanting to reduce their carbon footprint from investing in Poland. Demographics is another major problem. The population is declining, and labour shortages are intensifying. This encourages a sharp rise in wages. The minimum wage will thus increase by 19% in 2024 and will become significantly higher than that of other eastern countries, at a level comparable to that of Portugal.
Years of solid growth have allowed Poland to overtake Belgium, Austria and Sweden to become the 6th economy of the European Union against 9th place when it joined. But this economic boom is over.
Growth in the next few years will be just above the European average. This does not make sense for Polish assets since the zloty, overvalued against the euro, is set to depreciate significantly. The Warsaw Stock Exchange also has high volatility.
So, don't be blinded by the exceptional performance of the past few weeks.
