The geographical diversification of Poland’s foreign trade

The geographical diversification of Poland’s foreign trade balance has increased in recent years. The growing surplus in trade with the European Union member states is accompanied by a growing trade deficit with other countries.

In the H1’19, the positive balance in trade with the EU increased to EUR25.3bn, accounting for 10.2 per cent of Poland’s GDP. At the same time, the negative balance in trade with the remaining economies deepened to EUR25bn, or 10.1 per cent of GDP.

The strong geographical diversification of Poland’s foreign trade balance is the result of disparities in the importance of both main groups of countries in exports and imports. In the H1’19, EU member states accounted for 80 per cent of the overall value of Polish exports, while the remaining countries only accounted for 20 per cent. However, in the case of Polish imports this ratio was 59 per cent to 41 per cent. This means that the share of non-EU countries in Poland’s imports is twice as high as in exports.

The top 10 countries with which Poland recorded the highest trade deficits were all non-EU member states, mainly from Asia. The greatest disparity is observed in Poland’s trade with China. In the H1’19, exports to that country accounted for slightly more than 1 per cent of the overall value of Polish goods sold abroad, but China’s share in Polish imports reached 11.7 per cent. Such a large asymmetry was reflected in the trade balance. The trade deficit with China amounted to the EUR12.5bn and thus accounted for half of the negative balance in Poland’s trade with non-EU member states.

On the other hand, among the 10 countries with which Poland has the highest positive trade balance, nine are European Union member states. In the discussed period, Poland recorded the highest trade surplus with Germany, the United Kingdom and the Czech Republic.

The simultaneous changes in the structure of the trade surplus with the EU and the trade deficit with non-EU member states may indicate that there is a high correlation between them. This is due to the fact that imports from the third countries, which are to a greater or lesser extent processed in Poland, constitute a significant part of Polish exports to the European Union. This is also evidenced by the deepening of the trade balance disparities in Poland’s trade with these two groups of countries along with the growth in the overall value of Polish exports. For this reason, both phenomena should not be analysed separately. A similar structure of the foreign trade balance is also observed in other countries of the Visegrad Group (V4) — the Czech Republic, Slovakia and Hungary.

Strong concentration of Polish exports

Polish exports are concentrated in markets that are located in relatively close proximity, which is largely associated with the high substitutability of the products included in the Polish export offer. Throughout the entire period of the economic transition Polish exports grew primarily on the basis of increasing sales to other EU member states. This was mainly the result of the economic activities of the largest exporters, that is, the international corporations whose subsidiary companies operate in Poland.

This is one of the reasons why the share of the third countries in Polish exports is significantly lower than on average across the European Union member states. In the H1’19, in the EU the third countries accounted for 35 per cent of the overall value of exports on average, which is 15 percentage points more than in Poland. Luxembourg, the Czech Republic, Slovakia and Hungary were the only EU member states in which the share of the third countries in exports was lower than in Poland.

In most of the EU member states, and especially in the economies of Western Europe, the opposite situation is observed, that is, the share of non-EU member states is higher in exports than in imports. The rapid growth of demand in non-European economies was the main driver of the growth in exports in recent years. As a result, the rate of growth of exports directed outside the EU was higher than the rate of growth of exports to other EU member states.

Greater diversification of imports

Non-EU countries have traditionally been the main source of Poland’s supply of raw materials. The third countries provide nearly 80 per cent of the raw materials imported to Poland, including as much as 92 per cent of all imported energy raw materials. At present, raw materials and fuels account for approximately 30 per cent of Poland’s trade deficit with the third countries, while in the years 2000-2014 they accounted for an average of 55 per cent of the deficit. The decrease in the importance of raw materials and fuels in the overall imports from the third countries resulted from the decline in their prices on world markets, as well as the increase in imports — and, consequently, also the negative balance — in other product categories.

The increase in the importance of non-EU member states in Polish imports is the result of globalization processes, which are primarily associated with the relocation of manufacturing activities from developed countries to non-European emerging economies. This is reflected in the growing importance of this group of countries in global exports. This especially applies to China, which is the world’s biggest exporter. China is currently the biggest supplier (in terms of value) in 5 out of the 17 major categories of imports to Poland, and also ranks as the second biggest supplier in two additional categories.

The relatively high share of non-EU member states in Polish imports is also shaped by the final demand. According to data from the Organization for Economic Co-operation and Development (OECD) and the World Trade Organization (WTO), in the case of investment imports and consumption imports, more than 45 per cent of the foreign value added was generated in non-EU countries. Just like in most other economies of Central and Southeast Europe (CSE), the share of value added generated in China is relatively high in Poland. In 2015 China’s share amounted to 13 per cent in investment imports and 10 per cent in consumption imports. This largely explains China’s high share in overall imports to Poland. Meanwhile, in the countries of Western Europe the most important source of non-EU foreign value added, which is used in the final demand, is the United States. This difference is probably associated with the lower purchasing power in Poland and in other countries of the region compared with Western European nations, and the differences in unit values of goods coming from China and from the United States. For this reason, products imported from China are more competitive on the Polish market than their counterparts originating from EU member states.

The impact of global manufacturing processes

The geographical diversification of the trade balance also results from the shape of the international production networks in which Polish exporters participate. In general, non-European countries play a relatively large role among the subcontractors supplying Polish factories, while intermediate goods of Polish origin are mainly used by exporters from other EU member states. Because of this, processed intermediate goods account for an increasing part of Polish imports from non-EU countries and, consequently, also an increasing part of Poland’s trade deficit with this group of countries.

According to OECD and WTO statistics concerning value added in international trade, in 2015, Polish exports of manufacturing goods were 34.3 per cent of foreign value added, which is slightly more than the average in the European Union’s exports. The value added coming from outside the EU accounted for 45 per cent of the entire foreign value added used in Polish exports.

The share of value added generated in China in Polish exports has increased in recent years. While in 2005, it accounted for slightly more than 3 per cent of the foreign value added used in Polish exports, by 2015, its share already exceeded 10 per cent. In 2015, only Germany had a greater foreign value added contribution to Polish exports than China. In Poland the share of foreign value added generated in China in the overall foreign value added embedded in exports is the highest among the EU member states. A relatively high share of value added derived from China is also recorded in the exports of the Czech Republic and Slovakia (in both cases 9 per cent), as well as Hungary (8 per cent). The exports of electronics are characterized by a particularly high share of Chinese value added.

The gradually increasing share of value added coming from China and other countries with lower production costs enables Polish exports to maintain high price competitiveness on the European markets.

Meanwhile, the value added generated in Poland and used in the exports of other countries is primarily directed to the member states of the European Union. In 2015 almost 80 per cent of the value added created in Poland and intended for export production was used by exporters from the EU, and, in particular, by exporters from Germany and the Czech Republic. On the other hand, only a little over 20 per cent of that value added goes to exporters from non-EU countries.

Poland is the regional center of logistics services

In recent years, consumer goods have had the greatest contribution to the deepening of the negative balance in Poland’s trade with non-EU countries and the growth of the trade surplus with the EU member states. We are seeing relatively solid growth of imports in this category from non-EU countries, and a simultaneous rapid increase in exports to the European Union. This phenomenon primarily involves the imports of products from the third countries into the EU, the repackaging of these products in Polish warehouses, followed by further distribution to the European Union member states. The rapid rise of this form of foreign trade is associated with the modernization of the Polish network of highways, the strong growth in the numbers of relatively low-cost storage facilities, and access to competitive transport services. As a result, Poland is becoming an increasingly important regional center for logistics services. This form of trade will probably continue to develop rapidly in the near future, also due to the growing importance of e-commerce.

This phenomenon is relatively easy to observe in the trade in clothing and footwear, but also at the level of individual tariff headings, which is exemplified by video game consoles. One consequence of these developments is the simultaneous increase in the share of these product groups in both the exports and the imports.

Clothing is the largest product group in which transactions of this type are recorded. In the H1’19, the share of clothing products in Polish exports reached almost 3 per cent and was the highest in 15 years. In terms of the geographical structure, Polish clothing exports are dominated by EU countries, which account for more than 90 per cent of the value of these exports (this primarily includes Germany and the countries of Central and Eastern Europe), while the remainder of these exports mainly go to Russia and Ukraine. Meanwhile, Poland’s clothing imports are dominated by non-EU countries, and, in particular, Bangladesh, China and Turkey. The growth in the value of clothing exports in Poland since 2015 has been one of the highest among the member states of the European Union (higher growth of clothing exports has only been recorded in the Czech Republic, most likely for the same reasons).

A similar situation is observed in the imports and exports of footwear products. The share of footwear in Poland’s foreign trade is currently at the highest levels in history, reaching 0.9 per cent of exports and 1.2 per cent of imports.

Thanks to the development of this form of trade, Poland has also become the second largest exporter of video game consoles in the European Union, alongside the Netherlands. Of course, the position of the Netherlands as the largest EU exporter of consoles is due to that country’s greater imports compared with Poland. The rapid growth in the value of Polish imports and exports of consoles may indicate that the scale of this phenomenon will continue to increase and that it will cover ever greater numbers of products.

The article presents the private views of the author and is not an expression of NBP’s official position.

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