Eastern Europe’s Davos
CEE’s Econ-Forum was optimistic, but cautious about post-crisis business
Play Inc. executive Jorg Bang-Jensen has reason to smile. The CEO of Poland’s fourth largest mobile operator has been able to report "steady growth" since the company started operations just six months before the financial crisis.
Now, the question is, "Is the crisis over?" dominated discussion at Central Europe’s annual gathering of economic futurists in the spa city of Krynica Zdrój in September.
Over its twenty-three years of existence, the Krynica Economic Forum has earned the nickname of "Davos East" and has become one of the most interesting places to test the mood of the Polish economy and, to a certain extent, the economies of the rest of Central Europe.
As the conference opened, Polish Prime Minister Donald Tusk set an optimistic tone, while businessmen and analysts were grumbling.
The optimism was premature, they said. And anyway, Tusk was just grasping for weapons in the political offensive against his main opponent Jaroslaw Kaczynski – who has been gaining ground in polls in recent months – as he bombarded the audience with numbers showing how well Poland had weathered the crisis.
Still, one had to admit that official statistics were on his side: After a year and a half of rocky footing, the Polish economy has in fact been on more solid ground.
"The Polish GDP will grow at 1.5% this year and next year perhaps even 3%," Tusk said in Krynica. "Poland has defended itself against the crisis."
Business people and economists were more cautious. As proof, there was a small outlet of the Biedronka supermarket chain next to main conference halls, serving as a showroom for conference guests and one of the centres of informal discussions over good wine and fresh Polish food. This chain, owned by Portuguese company Jeronimo Martins, is famous for refusing credit and other cards as payment, offering cheap products and being among the ten biggest Polish companies.
Their "bargain" business model could be a symbol for Central European companies after the crisis – very rational with increasing efficiency and a careful eye on costs. The crisis has taught CEE businessmen a lot, and those who come with cost-effective models like Jorg Bang-Jensen from Play Inc. could be the big winners.
But politicians must play along and hunt for investors, as unemployment is high and not improving quickly.
While Slovak Prime Minister Robert Fico claimed that "the situation really looks better," Hungarian Economics Minister Zoltán Cséfalvay also saw signs of an end to the crisis in Hungary. "We have finished with fiscal consolidation," said Cséfalvay, pointing to positive signs like better exports and investment in the automotive industry. Eight months prior to next spring’s primary elections, he couldn’t add anything new, although he stressed that after constant changes, the economic environment in Hungary was now stable.
This year, Eastern Davos more than before has shown how economy and business in Central Europe are dependent on politics. Privatisation has stalled, and in Hungary and Slovakia the state is even buying back former public utilities. Hungarian Prime Minister Viktor Orbán was especially sharp in his attacks on multinationals, where heavy taxes are now being levied in the banking, telecom and retail sectors. It was, he said, "the end of colonisation".
In Poland, the prime minister announced the shake up of the private pension system, whose consequences for private savings and financial markets are far reaching as well as unclear in their complexity. Other politicians spoke about different tax regimes and regulations. The head of Polish conservative opposition Jaroslaw Kaczynski even told the business audience that taxes would have to go up, making experts sceptical of further recovery.
"We can see possibilities for what could be done, but if the politicians don’t do these things, the crisis will continue," said economics professor Miroslaw Gronicki, a former Polish finance minister and now private consultant. Labour markets are still heavily regulated, as in Slovakia where a tighter new labour code has brought hiring in private companies to a halt.
Overall, GDP growth this year in Poland could be around 1.5%, and around 0.5% in Hungary, and the Slovak Finance Ministry has upped its prognosis for 2013 from 0.5% to 0.8%. And while the Czech Republic will probably stay in recession this year, the prognosis for 2014 is much more optimistic for all four Visegrád countries. However, they are heavily dependent on the eurozone, especially Germany, which is the region’s main trading partner.
So there was no secret formula revealed at this year’s Economic Forum in Krynica for how to tackle the crisis or great revelations as to which sector of the economy has the strongest prospects. The most crowded sessions were on the health care industry – perhaps a hint to future investors, in spite of the post-crisis cutbacks in public budgets.
"We should now concentrate on spreading the optimism," Tusk declared. And looking at the pared-back banquets and accompanying events at the Economic Forum, the crisis is not quite over yet.
Still the faces of the participants seemed to be happier – and the sun shining more brightly – than at any time in the previous four years.