The economy before the coronavirus explosion.

Eliza Przeździecka 

Head of Economic Research, AmCham 

The end of the month has never been so uncertain for many employees as it is now. Schools, colleges, kindergartens and crèches, most retailers and restaurants and even borders with other countries remain closed due to the epidemic. There is great uncertainty among the workers. This applies to all industries, both in the private and public sector, regardless of size – branches of the largest international corporations, as well as domestic micro companies.  

The Polish economy is facing a virus that has attacked unprecedentedly and very severely. The growth forecasts are subject to constant corrections, as we do not know when the restrictions in economic activity will be removed. The ever-increasing number of patients is overloading the health care system, which needs even more budgetary support than before. All this is compounded by uncertainty about the scale and duration of the epidemic. A kind of helplessness in the face of the spread of the virus and caution in returning to traditional social and business contacts will make it not easy to return to the path of prosperity after 2-3 (or maybe more) months of restrictions on economic activity. 

Many workers are working remotely, some are giving up their jobs or being laid off, and the turnover of many companies is falling significantly. The redundancies are already where business stands – retail (except for food), tourism, restaurants, transport, consuming services. The supply chain was broken by manufacturers dependent on materials and components from China, among others. Production in the automotive industry stopped. According to the Polish Chamber of Commerce (KIG) estimates there are 320 to 480 thousand people at risk of losing their jobs in the optimistic variant of this year’s GDP growth of about 1% and between 1.12 million and 1.28 million people in the variant if GDP would fall by 5%. The results of the survey conducted by The Polish Confederation “Lewiatan” indicate that in the nearest future the reduction of employment will affect nearly 70% of companies in Poland.   

The labor market suffers not only from redundancies. There are industries where the need for employment has arisen, especially as the supply of labor has fallen by several hundred thousand Ukrainian citizens who left Poland in the last weeks. Examples include companies from the food, construction and IT industries. These companies need new employees, but with a paralyzed health service it is difficult (and sometimes impossible) to perform preliminary examinations. Moreover, with closed borders and suspension of work permit procedures for foreigners, employers must focus their activities solely on national resources. 

The reality of many companies today is that remote working and home-office mode have become a standard. However, companies that have moved their activity to the “online” mode face many organizational and formal problems related to remote work. There are substantial questions: in what form to entrust tasks, how to monitor them and assess the effects, for how long it is a change, whether the employee can question the orders, whether the refusal by the employee can be a basis for holding him/her responsible, whether remote work can be commissioned regardless of housing conditions, specific circumstances justifying remote work. In addition, it is important to sensitize employees to maintain security within the scope of protection of company information, personal data, responsibility for entrusted equipment or health and safety at the place of residence (outside the company). In this context, the Federation of Polish Entrepreneurs points to the lack of guidelines precisely regulating the principles of remote work provision, so that this method of providing work can be universally applied in a legal manner and provided for in the provisions of the Labor Code. In many cases remote work also means a great need to adapt employees (training and quick adaptation to new tools) and equipment. These are often costs, which the company has not previously planned.  

So far, rapidly growing social income has stimulated consumer demand and the entire economy. A drop-in salary will mean decrease in income, and this will lead to a fall in consumption and real GDP, the source of which, according to NBP data in 2019, was almost 60%. According to experts from Citi Handlowy in their latest report, consumption will fall between April and June by as much as 10% (quarter-on-quarter). In the same period, investments may shrink by 25% and in the whole 2020 by 15%. According to Citi, a downturn in the economy will mean a negative value of GDP changes: -3,5%. This means that in 2020, for the first time since 1991, our economy will see a drop in GDP in annual terms.      

The key to the scale of the annual GDP decline is how quickly the economy will return to high activity after a period of stagnation. Here, business bankruptcies, redundancies and increased consumption will undoubtedly be a major barrier. Therefore, from the point of view of an effective return to growth, state aid and economic policy measures will be desirable to help companies maintain liquidity and jobs, even at the price of later sacrifices. It will also be equally important how other countries will manage in the current economic situation, because both the demand for Polish exports and the activity of foreign investors in Poland depend on them. 

Today, we can translate the theory of evolution into business in our own way, claiming that the coronavirus epidemic will not be survived by the strongest, but by those who will be able to adapt best and fastest to the new situation. One thing is certain – business and economy will never be the same as in the pre-COVID19 era. Therefore, it is necessary to revise the objectives and existing strategies as soon as possible, and to prepare for the new ones.