Poland's economy at risk if Ukrainians head further west

By Marcin Goettig

WARSAW - For Oleksandar Potashnyi, a Warsaw Uber driver from Kiev, the European Union's move this month to waive visas for Ukrainians now means he can go further west as a tourist -- easily.

But for work, he plans to stay in Poland, perhaps opening his own business in a few years.

The issue for Poland after the EU's waiver is how many of Potashnyi's compatriots -- possibly as many as a million of whom work in the country -- will do the same, and how many will move on to Germany and the like.

It is a crucial question for the Polish central bank, in particular, as it watches for signs of wage pressures gradually accelerating throughout the economy.

Potashnyi, a 27-year-old who left Ukraine a year ago to exchange a $400 monthly wage as a taxi driver for the $1,300-$1,400 he earns with Uber, reckons some will go, mostly those who would otherwise have returned to Ukraine.

"I want to stay, but those who want to return to Ukraine (now) won't," he said.

The visa waiver means some Ukrainians, especially temporary construction workers, may take advantage of visa-free travel to seek higher-paying work further west in the EU, albeit often illegally.

That could be a significant part of Poland's work force. Since Russia annexed the Crimean peninsula in 2014, plunging Ukraine into recession and instability, hundreds of thousands of Ukrainians have sought employment permits in Poland annually.

Economists say this influx has helped keep wage pressures in Poland - a country of 38 million and 16 million workers - in check and also facilitated further economic growth. Poland has one of the fastest aging societies in the EU.

The influx of Ukrainians runs contrary to most of the rest of Central Europe where years of westward EU emigration have left steep labour shortages.

Polish central bankers have noted the risk.

"It is very difficult to estimate, but definitely some Ukrainians working in Poland right now will move, for instance, to Germany," Monetary Policy Council member Lukasz Hardt said. "This is a very important factor."

In recent months, central bankers have listed wage pressures as one of the most significant factors in their assessment of interest rates as the Polish economy recovers from a dip in growth last year.

ROLE OF LABOUR

For now, the central bank is signalling borrowing costs will remain at record lows, possibly through 2018, with wage growth at around 4 percent annually. Unemployment rates are at their lowest since Poland's transition from communism in the early 1990s, but the Ukrainians are filling the job shortages and keeping wage growth from spiking.

That compares with double-digit wage increases in Hungary, which has accepted significantly fewer Ukrainian workers and has mounting shortages of labour in construction, healthcare, retail and elsewhere.

Polish Central Bank Governor Adam Glapinski said in May that rate-setters were watching out for potential outflows of Ukrainian workers but aren't worried for now.

Sources within the bank say, however, that a minority of policymakers believe wage growth could force a hike sooner, driven in part by government plans to raise minimum pay and its move to lower the pension age later this year.

Employers organisations say Poland's conservative government needs to do more to help migrant workers settle in Poland to plug labour shortages.

"The legal labour market in Poland will have to compete with the EU's grey economy," said Andrzej Kubisiak, a spokesman for Work Service, Poland's biggest employment agency.

One employers group, Pracodawcy RP, said on Monday it expected the number of Ukrainian workers to rise in Poland in the short term now that visa requirements are lifted, potentially reaching 2 million.

But, over time, the group said, some will travel elsewhere in the EU, seeking higher pay. "It's a pity the government isn't doing anything to stop them," it said.

In the end, Poland may end up hoping for more newcomers like Potashnyi.

"You can earn well in Poland. In three to four years, you can have a normal life," he said, content to stay.

(Additional reporting by Marcin Goclowski, Pawel Florkiewicz, Anna Koper, Pawel Sobczak and Justyna Pawlak in WARSAW, Jan Lopatka in PRAGUE, Gergely Szakacs in BUDAPES; editing by Justyna Pawlak/Jeremy Gaunt)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)