Home » Business » Record decline in GDP. Kowalski has reasons to worry [OPINIA]

Record decline in GDP. Kowalski has reasons to worry [OPINIA]

We have behind us the record of the times of the Third Republic of Poland. Unfortunately negative. GDP fell by as much as 8.2 percent in the second quarter. compared to last year It is better than economists predicted, but it is a poor consolation. For the average Polish woman and the average Pole, this may mean trouble.

  • GDP fell by 8.2 percent. in the second quarter. In one quarter, we lost what we had earned since 2018
  • What does this mean for an ordinary Kowalski? The fact that we temporarily returned to the economic conditions of 2017 with a worse outlook for the future
  • If we were to go back to 2017, wages would have to fall by 10%, i.e. by an average of PLN 500, and unemployment would have to increase by another 125,000. people. It is as if everyone working in Białystok were suddenly unemployed
  • We do not only have to worry about loan installments. Interest rates will not rise soon

What is this Gross Domestic Product? This is the world’s adopted measure for the growth or – as it is now – decline of the economy. It shows how consumption, investments, added value generated by enterprises, exports and imports have changed. This is corrected for inflation and is what the whole economy looks like.

8.2 percent decline in GDP means a situation as if every twelfth employee was suddenly made redundant and did not start any work for three months. Or from the other side – that’s it how in this short period of time suddenly wasting the effort of two years and three months of working in our country.

Back to 2017

According to BI calculations, from the beginning of 2018 to March 2020, the gross domestic product increased by exactly 8.2%. So, in the second quarter of 2020, we suddenly went back to 2017.

What could this mean if the economy does not recover in the coming quarters? Economically, we will find ourselves back in 2017. The average salary can therefore be over 10 percent. lower than today.

In the second quarter of 2017, you earned 4.5 thousand. gross PLN, a currently gross PLN 5024 – as recently reported by the Central Statistical Office. The average salary is currently more than PLN 500 higher and if nothing changes and the economy does not move, companies will try to return to this level in order to stay afloat.

And how easy would it be to find a job under the conditions of 2017? At the end of June, i.e. already in the epidemic months, there were 1,026,000 in Poland. unemployed, and on the brink of a pandemic, only 909 thousand. In mid-2017, there were 1,152 thousand. unemployed, i.e. by 125 thousand people more than at the end of June 2020.

If there is no improvement in the economy, that many people may still lose paid employment. It is as if everyone working in a city the size of Białystok suddenly started visiting employment offices for unemployment benefits.

And it could be even worse …

The unemployment rate in mid-2017 was 7%, while the last one was 6.1%. And now it could be even worse, because after all the minimum wage has changed since then.

In 2017, it was 2,000. PLN gross, and currently it is 2.6 thousand. PLN gross. At a higher minimum, accompanied by the results of the economy in 2017, entrepreneurs will be less willing to hire. Instead of ten people for the minimum wage from 2017, they can hire eight for the same money, paying them the minimum from 2020. Increasing their responsibilities accordingly.

Moreover, The economic outlook for the future is also much more uncertain than in 2017so entrepreneurs will be much more cautious about employment.

Consequences of the blockade

The decline in GDP is a consequence of the blockade imposed on the economy during the pandemic. And at the same time the cost of saving yourself from what the coronavirus was doing in Italy or Spain. Anyway, a country that did not impose restrictions on the economySweden – did not show better economic performance at all. It also fell by 8.2 percent. year on year in the second quarter.

Quite simply, blockades in most countries have had an impact on every economy, and there are none that have not suffered. Many years of economic ties between countries were suddenly violated.

It is not that workplaces have suddenly disappeared, shops and restaurants have closed. Most of them still exist and are waiting for rebound in the hope that the investment will not be lost. Since 2017, new highways have also been added, and the infrastructure has improved. The problem is, what will happen if the crisis lasts longer, and will some entrepreneurs abandon hope?

We can be confident about loan installments

One thing that can relatively calm the ordinary Kowalski is loan installments. In a crisis, entrepreneurs face less demand, so they will lower prices sooner than increase them.

Thus, the economic decline reduces the chances of an increase in interest rates, as it pushes the prospect of inflation away. You can see it anyway after the inflation rate of recent months.

And if the rates did not rise, the loan installments – currently the lowest in history, because the interest rate is also the lowest – will remain unchanged. According to Piotr Bielski, director of the Economic Analysis Department of Santander Bank Polski, interest rates will remain stable for now.

Of course, everything can change. Entrepreneurs from the service industry raised prices after all. Hairdressers had to be paid 13.2 percent in July. more year on year, and dentists by 14.2 percent. However, an amendment should be taken to react to downtime and temporarily increased demand. If someone did not go to the hairdresser for three months or did not have access to a dentist, he realized his needs immediately after the restriction was removed. Later, the demand will drop to normal levels, which will also translate into prices.

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