CASE Highlights
Trade, Innovation, and Productivity
On August 14th, The Polish Statistical Office published first flash estimates of the seasonally adjusted GDP figures for the second quarter of 2020. Specifically, the national economy contracted by 8.9% q/q and 7.9% y/y building upon the negative effects of the COVID-19 outbreak and lockdown measures imposed by the government. While it is still too early to know the supply- and demand-side decompositions of the GDP growth rate, the contributing factors include the significant decline in production of main industries with the January-July 2020 index of sold production in decrease by 5.2% y/y partially driven by the fall in external demand (exports fell by 5.3% y/y in June 2020). Moreover, the national lockdown and growing insecurities on the labour market contributed to a sharp drop in consumer confidence (20.4 pp y/y in August 2020). Moreover, the decline in imports by 9.4% in June 2020 is on one hand an indicator of falling domestic consumer and investment demand and is also linked to bottlenecks in intermediate goods supply chains.
More recent data shows some signs of recovery. For example, Statistics Poland business climate indicators currently show a sizable improvement compared to July 2020, albeit the indicators remain in the negative for the majority of the sectors. The accommodation and food services (3.7 pp), wholesale trade (3.6 pp), and manufacturing (3.1pp) sectors experienced the highest m/m growth in August 2020. At the same time, financial and insurance activities, as well as information and communications, made up for the only exception with positive business climate indicators at 2.7 and 5.4, respectively. However, the consumer confidence is not improving with August figures showing a further 2.9 pp m/m decline in consumer confidence compared to July 2020. Despite that, the July retail sales show some signs of recovery with 5.7% m/m increase.
Labour Market and Environment
Despite the fact that recent lockdowns around the world have led to a 5% drop in CO2 emissions, (according to UNCTAD estimates), some measures undertaken to fight the pandemic have had a negative impact on the environment. An ever-growing need for plastic face masks, gloves, or hand sanitizer bottles not only leads to plastic pollution but also threatens Europe’s war on plastic as used products are not fully recyclable. In fact, it is estimated that 75% of plastic personal protective equipment will end up in the landfills or the seas. The impacts this plastic waste will have on fisheries, tourism and maritime transport, among others, add up to an estimated USD 40 billion each year, according to the UN Environment Programme. What is more, social distancing has also led to a flood of home-delivered plastic as people opt for online shopping and food take-away services significantly contributing to plastic uptake.
Macro and Fiscal
As of July 1st, new VAT rates’ matrix based on Combined Nomenclature codes was introduced in Poland to simplify the system and bring it into line with systems in the other EU Member States. Using our CASE CPI we analysed how changes in tax burden for specific goods, namely seafood (increase in rate from 5% up to 23%) and mustard (decrease in rate from 23% down to 8%), influenced final consumer prices. We found that after a month following the introduction of new rates average prices of seafood and mustard increased by 8% and fell by 5%, respectively. In both cases, the scale of the price adjustments suggests that less than 50% of the tax burden/tax burden decrease was passed onto consumers. The pass-through rate appeared to be higher for seafood than for mustard.
