While the euro zone has been slowly emerging from recession, two European countries outside the club have, so far this year, enjoyed speedy economic recoveries. The economies of Britain and Poland have both rebounded from growth dips last year, exceeding most analysts’ expectations for 2013. As recently as last December consensus forecasts suggested that Britain would only grow 1.1% this year. That looks far too pessimistic; the British economy grew almost that much in the first six months of the year alone.
Experian Economics, a consultancy, has even suggested growth could be as high as 2.1% in 2013. Poland’s rebound has also taken many international forecasters by surprise. On October 21st, the Central Statistics Office for Poland confirmed that annual growth had reached 0.8% by the end of June, in contrast to worries of persistent zero growth last year. Growth rates appear to be accelerating as well. The Organisation for Economic Co-operation and Development’s forecast for Polish GDP growth, of 0.9% for 2013, now seems likely to be exceeded. Growth may reach 2.2% in 2014.
Floating exchange rates have helped Britain and Poland outperform their neighbours. Britain's terrible years between 2007 and 2009 could have been much worse if the pound had not dropped in value by 25%. British GDP fell much less than in Ireland, a country inside the euro zone with similar financial imbalances. Poland too escaped the worst of the recession, in part due to the zloty falling in value by a third. The Baltic states, by contrast, sought to defend fixed-exchange rates with the euro and suffered output declines on the order of 15-20%. Exchange-rate flexibility still appears to be supporting the Polish economy. The zloty has weakened slightly against the euro this year, which has continued to boost Polish exports.
But although both countries appear to be returning to economic health, recent signs point to a less balanced recovery in Britain than in Poland. George Osborne, Britain’s Chancellor of the Exchequer, may want to lead a “march of the makers”, but Poland is beating him at that game. While Polish industrial production rose 6.2% in September compared to the year before, the latest data suggests that there was a slump in manufacturing output in Britain over the summer. Many commentators now claim that Britain’s recovery is built on shaky ground. They say that government policies like Help to Buy, a subsidised loans scheme for house buyers, have created an unsustainable consumer boom based on an inflating real-estate bubble. London house asking prices shot up 10.2% alone in October, according to RightMove, a property website. Interestingly, sterling has appreciated slightly over the past six months, potentially reflecting foreign interest in property investments (and making life slightly more difficult for Britain's long-suffering manufacturers).
Underlying trends in the financial sector also suggest that Britain’s recovery may prove less sustainable than Poland’s. Rising business investment in Poland is being buttressed by bank lending, while British firms still find getting credit difficult. A report on Polish banks released last week by Citigroup, a bank, suggests that loan growth there has shifted towards corporate investment rather than consumer spending. While business investment loans rose 3.1% and corporate real-estate loans increased 3.2% year-on-year in August, consumer loans only rose 0.5%. On the other hand, according to Bank of England data, corporate loans to British firms have fallen every quarter since 2009, with a slump in new lending to large businesses reported earlier this year. In contrast, consumer mortgage lending in Britain rose to a five-year high in September. Britain’s continuing tendancy to rely on consumer spending rather than business investment may well limit its capacity for growth in future years, even if it has enjoyed recent headline gains.