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A case of Warsaw jitters

Conor Dillon
March 6, 2014

Ukrainian bankruptcy and a Russian invasion next door? Polish media report that Poles have much to fear. But a market strategist from Poland's oldest and largest bank has good news: the country's economy will be fine.

Weißrussland Russland Öl Westen
Image: picture-alliance/dpa

When it comes to the crisis in Ukraine, Poland has been anything but quiet. On Thursday (06.03.2014), it was the country's defense minister, Tomasz Siemoniak, who informed reporters that men wearing military fatigues had stopped members of the Organization for Security and Cooperation in Europe from entering the Crimea peninsula in Ukraine.

In the week prior, Poland's president invoked Article 4 of the NATO treaty, its prime minister convened an extraordinary meeting of party leaders in parliament, and its foreign minister compared Russia to a predator whose appetite grows as it eats. Domestically, Siemoniak also denied rumors that Polish troops were on the move to protect the country against a potential Russian attack.

Those reactions to events in Ukraine are influenced by history and geopolitics. But they are not grounded in economics, according to market strategist Mariusz Adamiak at Bank Polski, grounded in economics.

"The fact that people are starting to buy products like cereals or flour or something just to have inventories at home is nonsense," he told DW. The strategist at Poland's oldest and largest bank added that other media reports, some of which have focused on shelters in Poland in the event of nuclear war, are over the top.

While Adamiak did not downplay the threat of further violence in Ukraine, Polish businesses and the Polish economy, he said, have little to fear.

A Russian soldier looks off-camera Photo: REUTERS/Vasily Fedosenko
Russian-speaking soldiers control many transportation routes and public buildings in CrimeaImage: Reuters

Ukraine's 'worst-case scenario'

Poland exports a diverse assortment of goods to Ukraine - including everything from apparel to home appliances and automotive parts. Although statistics from Poland's Economy Ministry indicated a decline in Polish exports to Ukraine for the first two months of 2014, Ukraine is still Poland's eighth-largest export market and goods sent there make up 1 percent of Polish GDP.

"Even in the worst-case scenario," Adamiak said, "it's highly unlikely that problems in Ukraine will cost Poland's economy more than 0.5 percent of GDP." That "worst-case scenario" involves Ukraine defaulting on its debts, which is less likely as initial loan guarantees and other offers of aid have been made by the United States and European Union.

Specific Polish companies, however, are likely feeling the pinch: The LPP apparel company sells 4 percent of its goods to Ukraine customers. Sniezka, a Polish paint manufacturer, considers the country its most important market. Rovese, which makes ceramics and bathroom furniture, has facilities in both Ukraine in Russia. "This is probably the single most exposed company, because it has one-third of sales in Russia and Ukraine and also has significant facilities there," Adamiak said.

A dependent economy

It's Russia, however, where the pinch could turn to pain. In that case, it wouldn't be exports lost to a country in default but rather a single and very vital Russian import. "The Polish economy is highly dependent on hydrocarbons from Russia," Adiamak said.

That is where Poland's outspoken support of Maidan protestors in Kyiv and its disapproval of hostile takeovers by Russian-speaking troops of government facilities in Crimea could ultimately prove harmful.

"Poland has been quite active in this conflict - it's a leader in supporting Ukraine - so if Russia were to impose sanctions, it would choose those countries that are most active on the European side," Adiamak said.

Eight percent of Poland's gas, the strategist added, is imported from Russia; when it comes to oil, the number is higher.

A blue pipe with a red valve release Photo: Maxim Shipenkov dpa/lnw
That valve will likely remain open, Adamiak saidImage: picture-alliance/dpa

Hydrocarbon hardball?

Russia will likely not be turning off the gas tap any time soon, though. First, government coffers in Moscow are heavily reliant on those exports. "If they don't want to have a revolt, I don't think they'll play hydrocarbon hardball with Europe," Adiamak said.

Second, Russia would likely do so only in reaction to strong EU sanctions, which have not been agreed to.

In the event of sanctions, what Russia could do, Adamiak said, is hit back at Poland by blocking Polish imports. Russia takes in 6 percent of Poland's exported goods, together accounting for 2.5 percent of the Polish GDP. One-sixth of those goods are agricultural and are, according to Adamiak, "vulnerable."

"It's socially sensitive, politically sensitive, and actually, it's an easy target," he said, adding that food safety pretenses could be used to justify an end to agriculture imports.

But even in the worst-case scenario, Poland would still manage, he said, and far it would do so better than dramatic television reports and strong political language might lead many to believe.

"If Ukraine goes bust and Russia retaliates harshly against Poland, I think it's possible that Poland would lose 1 percent of GDP growth," he said. "But I think 1 percent is pessimistic."

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