The Covid-19 pandemic has strengthened Poland’s position in global exports

There are two main factors that determined the robust performance of Polish exports during the pandemic: the greater product diversification of the Polish export sector compared to most EU member states and the relative importance of durable consumer goods in Polish manufacturing.

The COVID-19 pandemic has led to a disruption of global supply chains, including both the demand side and the supply side, on a scale not recorded for a long time. The outbreak of the pandemic in China sparked discussions concerning the world’s excessive dependence on the supplies of components and final goods from that country. Companies were initially declaring that they would move their production away from China, and experts argued that China’s importance in the global economy would decrease. This scenario has not materialised, though. After more than a year of functioning in the conditions of a global pandemic, no mass relocations of production processes have been observed. Moreover, it is even difficult to find examples of individual companies carrying out such operations.

China as the biggest beneficiary of the pandemic

There is no doubt that China has become the biggest beneficiary of the COVID-19 pandemic. In 2020, China’s share in global exports increased by 1.6 percentage points (y/y), up to 14.7 per cent. Chinese supplies of medical products intended for combating the pandemic (including protective clothing and masks) accounted for almost one-third of the increase in this share. Increased exports of computer hardware, mobile phones, integrated circuits, and semiconductors, as well as monitors and television sets, cameras, lithium-ion batteries, and game consoles were also of significant importance.

In 2020, China attracted USD 149 billion of foreign capital in the form of foreign direct investment. This is just USD 7 billion less than the value of foreign direct investment received by the United States. According to the People’s Bank of China, the second quarter of 2021 was the third consecutive quarter with more than USD 80 billion of foreign capital invested in China. These figures are reflected in the business plans of major enterprises. According to press reports, the American giant Apple intends to increase the number of Chinese suppliers of parts and components for the production of the latest version of the iPhone, which will happen at the expense of rival suppliers from the United States, Taiwan, Japan, and South Korea. Therefore, both the macroeconomic and microeconomic data contradict the claims that production is to be relocated away from China.

Both the macroeconomic and microeconomic data contradict the claims that production is to be relocated away from China.

Polish exports have also benefited

Poland has also been one of the biggest beneficiaries of the COVID-19 pandemic. In 2020, its share in global exports increased by 0.14 percentage points compared to the previous year, up to 1.54 per cent. The collapse in Polish exports in the period March-May 2020 wasn’t as deep as in the case of other countries’ exports and the rebound also came faster – already in June.

Throughout 2020, the value of Polish exports (expressed in EUR) was 0.7 per cent greater than the year before. Meanwhile, Polish imports decreased by 3.2 per cent y/y. As a result, the surplus in Polish trade in goods reached record-breaking levels – its value amounted to EUR 10.5 billion.

The main factor that determined the relatively robust performance of Polish exports was the greater degree of the Polish export sector’s product diversification compared to most EU member states, including for example the other countries of the Visegrad Group.

Firstly, products of the automotive industry had a clearly smaller share in Polish exports than in the exports of many other EU member states, and this was the industry that suffered the most during the spring 2020 lockdown.

Secondly, the decline in Polish exports during the spring lockdown was cushioned due to the substantial share of products for which foreign demand decreased much less than for cars, or in some cases even increased. In the period from March to May 2020, Polish exports of electrical equipment decreased by nearly 14 per cent (year-over-year), the exports of computers, electronic and optical devices fell by 7 per cent, and the foreign sales of chemical industry products dropped by 5 per cent. Meanwhile, clear increases were recorded in the exports of drugs and pharmaceutical products (by 23 per cent), tobacco products (by 14 per cent), as well as clothing, beverages, and food products. Increases therefore related to almost 18 per cent of Polish foreign sales.

Thirdly, Polish exporters became the beneficiaries of the increased global demand for durable consumer goods, which were relatively important in Polish exports. This was particularly visible in the fall of 2020. The reintroduction of restrictions on the operation of the service sectors led to a shift in demand towards consumer goods at the expense of spending on the unavailable or clearly limited offering of services. This, in turn, further increased the demand for durable goods (including household appliances, electronics, and furniture).

Additionally, Poland has actively joined the global supply chains related to electromobility, which gained importance during the pandemic. We strengthened our position not only as a producer and exporter of electric buses, but also became the largest exporter of lithium-ion batteries in the European Union. The largest recipient of both these product categories is Germany. In 2020, the share of electric cars (including plug-in electric vehicles) and hybrid cars in the overall production of passenger cars in that country increased from 6 per cent to nearly 19 per cent.

We strengthened our position not only as an exporter of electric buses, but we also became the largest exporter of lithium-ion batteries in the European Union.

In the whole of 2020, the best results were recorded in the Polish exports of medicines, clothing, tobacco products, electrical appliances, beverages, computers, electronic and optical products. Meanwhile, the automotive industry hasn’t been able to fully make up for the losses incurred due to the COVID-19 pandemic.

The relatively strong results of Polish exports are mainly the result of the increased German demand for goods produced in Poland. In 2020, the value of Polish exports to Germany was 5.1 per cent higher than in the preceding year. Thus, Germany’s share in Polish exports increased by as much as 1.2 percentage points compared to the previous year, up to 28.9 per cent. This was due to increased supplies of durable consumer goods (electronics and household appliances), video game consoles, clothing, and cigarettes.

Growing imports from China

When it comes to Polish imports, China’s share increased the most during the pandemic – by as much as 2.07 percentage points. About one-fifth of this increase was due to increased supplies of products related to combating the COVID-19 pandemic (including medical protective clothing and masks). Durable consumer goods (including telephones, video cameras, monitors, routers and modems, laptops, speakers and headphones, household appliances) as well as parts and components for their production (including semiconductors and integrated circuits, electrical batteries, and battery parts) also gained in importance. China also increased its share in the imports of the remaining EU-27 member states (with the exception of France), but the increases were the highest in Czechia and Poland.

Poland is increasingly important to Germany

German statistics are also showing Poland’s growing importance in Germany’s trade in goods. In 2020, Poland’s share in German imports was 0.48 percentage points higher than in 2019 and amounted to 5.7 per cent. Only China gained more during this time – its share in supplies to the German market increased by as much as 1.44 percentage points, up to 11.4 percent. In terms of value, Poland was the fourth biggest supplier to Germany, trailing only China, the Netherlands, and the United States. China and Poland also gained the most as the export markets for German goods. In 2020, their share increased by 0.73 percentage points and 0.43 percentage points, respectively.

China and Poland are competing on prices

The fact that China and Poland have both gained importance in global exports during the pandemic is not accidental. Both countries share many common features in terms of their involvement in the global supply chains. Thanks to the influx of foreign direct investments, they have specialised in the production phase, manufacturing finished goods, as well as parts and components. China and Poland have benefited from the shift in demand from services to goods, and in particular to durable consumer goods. Both countries – to a greater or lesser extent – compete on the global market with the lower prices of manufactured goods. And during an economic crisis consumers are usually more willing to buy cheaper goods, which is why China and Poland were able to increase their sales.

During a crisis consumers are usually more willing to buy cheaper goods, which is why China and Poland were able to increase their sales.

In the fourth quarter of 2020, new factors emerged that began to negatively affect the price competitiveness of manufactured goods. Growing ocean freight rates, problems with containers, increasingly expensive raw materials and semi-finished products, as well as limited availability of microprocessors, have all contributed to a spike in production costs. This phenomenon intensified in the first months of 2021. In July 2021, the producer price index in China (i.e. the rate of change in prices of products sold, also known as the “producer inflation”) increased to 9 per cent (y/y). In Poland, it was only slightly lower – in June 2021 it amounted to 7 per cent. The increase in producer inflation was also driven by rising wages.

There is no doubt that the COVID-19 pandemic has only accelerated the discussion concerning the flexibility and reliability of global supply chains. The main issue is not so much the concentration of production in China but the low level of diversification. Changes in the approach to supply chain management, including a departure from the just-in-time concept, are already taking place. Out of 5 thousand German companies surveyed by the ifo Institute, only 10 per cent intend to increase their reliance on domestic supply chains in the future. At the same time, most companies plan to expand their warehouses and increase the number of suppliers.

The conclusions resulting from the conducted study raise the question of the extent to which the strengthening of China’s and Poland’s position in exports could be permanent, and to which it is only the effect of the pandemic. Own estimates carried out on the basis of incomplete WTO data indicate that in the first five months of 2021, China’s share in global exports decreased by about 0.25 percentage points compared to 2020. Meanwhile, Poland’s share in global exports continued to grow. In the period from January to May 2021, this share increased by 0.05 percentage points compared to 2020. Although Germany’s importance as an export market for Polish goods decreased slightly, Poland continued to gain importance as a supplier of goods to Germany, albeit at a slower rate than in 2020. Poland’s importance as a recipient of German goods also increased.

 

The above article presents some of the conclusions from a study carried out at the Polish Economic Institute. The study is presented in its entirety in the following publication: Ambroziak, Ł., Gniadek, J., Strzelecki, J., Wąsiński, M. (2021), Globalizacja w czasie pandemii, Polski Instytut Ekonomiczny, Warszawa.

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