Poland caught between the Eurozone's recession and mistrust of Russia

Poland is in a difficult spot economically. On one hand it is heavily dependent on orders from the Eurozone - many Eurozone-based businesses have used Poland for its lower cost manufacturing. But as the Eurozone fell into "disrepair", the orders slowed.

HSBC:/Markit: - Polish manufacturing output fell for the sixth successive month in October, albeit at a slightly softer rate. The latest drop in new orders and a further marked decline in backlogs strongly suggested ongoing falls in production at the end of the year.

Firms cut capacity in October in response to reduced workloads. Manufacturing employment declined for the second month in succession, and at the fastest rate since October 2009. Meanwhile, purchasing activity contracted for the ninth month running. Subsequently, pre-production stocks fell at the strongest pace since January 2010. Firms also reduced warehouse stocks of final goods, and at the fastest rate since May.

In times like these, Poland could potentially turn to its neighbor to the east, Russia. The Russian economy has not been as vulnerable to the Eurozone's woes - its heavily energy-based economy has performed relatively well. But the Polish government is simply not interested in providing support for doing business with the Russians. Historically based deep-rooted mistrust of their big eastern neighbor is running strong.

The Moscow Times: - Poland is conducting an unspoken policy of blocking investments from historical adversary Russia, a stance that could be costly for Warsaw, which needs to find new sources of capital to replace the weakened eurozone.

In the past six months, attempts by investors to acquire stakes in two high-profile Polish companies have been torpedoed, according to people with knowledge of the discussions, in large part because the bidders were Russian.

Suspicion of Russian intentions in Warsaw is entrenched. For centuries, Poles feared Russians as invaders and oppressive rulers. Since the end of the Cold War, that has been replaced by Polish fear of Russia's economic dominance.

What is new is that Poland's economy is slowing after decades of robust growth and can no longer rely on investor interest from its struggling trading partner, the eurozone.

With this in mind, some have questioned whether Poland can afford to reject any foreign capital, even from Russia.

Even when Polish firms can obtain much needed capital only from Russia, Warsaw would not budge. Part of the issue of course is that Russian companies are often state sponsored, and fear of Kremlin's influence in Poland runs strong.  Poland therefore will have to wait for the Eurozone's recovery before its own economy improves. It might be a while.

SoberLook.com