Poland Business Cycle

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Summary
This Country Focus analyses and interprets the statistical characteristics of the Polish business cycle. It also identifies leading and lagging variables and shows that the economic fluctuations in Poland differ to some extent from those in other emerging and mature economies, with Polish growth notably more volatile and government expenditure highly erratic.

The available data on GDP growth suggest that the Polish economy is approaching the peak of the second business cycle since the start of economic transformation from a centrally planned to a market economy. The current upswing is to some extent similar to the one of 1995-1997 which ended in large macroeconomic imbalances (increasing unemployment, spare capacity, widening fiscal and current account deficits). However, Poland now appears to be better positioned than after the last cycle and should be able to avoid a repeat of that outcome. Business cycles in emerging market economies

Although the economic literature on business cycles is vast, only recently have some papers on business cycles in emerging market economies appeared. Usually they analyse economic fluctuations within particular countries (e.g. Benczur and Ratfai, 2005) or make some cross-country comparisons (e.g. Aguayo et al., 2004 or Carmignani, 2005).

A common methodology used in the analysis of business cycles (based on observations of mature economies and economic theory) distinguishes pro-cyclical, counter-cyclical and a-cyclical variables. Pro-cyclical variables fluctuate together with GDP (e.g. industrial production, investment, employment, inflation), countercyclical variables against GDP (e.g. unemployment, net exports) and a-cyclical variables independently of GDP (e.g. real interest rates).1

With respect to timing, the 'stylised facts' of the business cycle identify leading, lagging and coincident variables: leading variables move ahead of GDP (e.g. average labour productivity, inventory investment, money supply), lagging variables follow GDP (e.g. inflation, nominal interest rates) and coincident variables, as the name suggests, move coincidentally with GDP (e.g. industrial production, consumption, employment) (Snowdon & Vane, 2005, p.306).

Overall, business cycles in emerging market economies (Carmignani, 2005)2 are not much different from those in mature economies (Snowdon and Vane, 2005, p. 306), By Michał Narożny*
The business cycle in Poland: where do we
stand?
Highlights in
this issue:
• While on the
whole not
different from
mature
economies, the
properties of
the business
cycle in Poland
display some
special
characteristics
• The current
cycle seems to
have reached a
peak but the
slowdown is
likely not to be
as pronounced
as in the
previous cycle
Volume IV, Issue 9
03.08.2007
ECFIN COUNTRY FOCUS
* Directorate for the Economies of the Member States.
The views expressed in the ECFIN Country Focus belong to the authors only and do not necessarily correspond to those of the Directorate-General for Economic and Financial Affairs or the European Commission. Economic analysis from the European Commission’s Directorate-General for Economic and Financial Affairs Identification of

direction and timing
is key in business
cycle analysis
ECFIN Country Focus Volume IV, Issue 9 Page 2
but economies in transition (though they do not constitute a homogeneous group) display some specific characteristics:
• overall, the economy is much more volatile than in the euro area, which is the consequence of structural changes and catching-up,
• shocks are slightly less persistent than in the euro area, and fluctuations consequently more frequent,
• government consumption is more erratic than in the euro area, suggesting a significant discretionary element in fiscal policies, but not one that is necessarily aimed at cyclical stabilisation,
• employment is a-cyclical in some, but pro-cyclical in other emerging economies, • inflation in emerging economies is volatile...
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