While Germany frets about competitiveness, its Central European neighbour continues to expand its manufacturing might.
In the past decade, output per person in Poland has surged 85pc to $43,113 (£35,223) according to data from the Organisation for Economic Co-operation and Development (OECD).
That compares with a rise of just 46pc in Germany and 55pc on average across the EU during the same period.
Germany’s manufacturing industry shrunk from 20.3pc of economic output to 18.5pc in the decade to 2022. Poland, meanwhile, saw its factory output grow from 16.7pc of GDP to 17.7pc over the same period. Output has leapt from $101bn in 2019 to £$122bn last year.
“There’s a broad success story in Poland over the last few years,” says Tomas Dvorak, a senior economist at Oxford Economics. “Not just the industrial sector but the whole economy has done remarkably well.
“Poland might be the only country in Europe – possibly worldwide – where industrial production has not only surpassed pre-pandemic levels but is actually back on pre-pandemic trend.
“The last three years with Covid, the energy crisis and so on – that hasn’t put a dent into Polish industry. And that’s remarkable.”
Economists are still scratching their heads as to why Poland has been so resilient, says Dvorak.
Some credit the boom to supportive government policy, while enduring structural factors such as lower wages and cheap land also help. Simple good timing has also played a role.
Industry has been a key part of Poland’s growth story since the fall of communism.
The country emerged from the Soviet Union with a large and ageing industrial base but its skilled and technically educated workforce made it an attractive place for a range of industries, particularly because of comparatively lower wage costs.
The average hourly cost of Polish manufacturing labour stood at $12.33 in 2021, according to the German federal statistical office, compared to $49.56 in Germany.
For a long time, Poland has been something of a younger sibling to German industry. It was a key pillar of the German automotive supply chain, producing engines, tyres and car seats, among other things. Automotive production still represents around one-tenth of the country’s manufacturing output.
Yet ministers in Warsaw want the country to start making higher-value items. They have launched a charm offensive to attract foreign cash in new and cutting-edge technologies.
Intel, the chipmaking giant, announced a $4.6bn factory near Wrocław earlier this year, while the government in Warsaw is also chasing investment by Taiwan Semiconductor Manufacturing Company, which is seeking to hedge geopolitical risks posed by China.
Poland has also raced ahead of others to secure investment in battery “gigafactories” that will sit at the heart of electric vehicle production processes.
In 2022, the Central European nation overtook the US to become the world’s second-largest battery manufacturer, with an annual output of 73 gigawatt hours – more than double that of Germany. A lithium-ion battery cell factory operated by LG Chem in Wrocław is the largest built in Europe so far. (Both Poland and Germany are dwarfed by China, which boasted an output of 893 gigawatt hours.)
Underpinning all this industrial investment is massive growth in infrastructure. From 2011 to 2021, Poland built 429 miles of motorways, compared to 193 in Germany – albeit Poland is starting from a vastly smaller base.
“They’re building like it’s China,” remarks Michał Piekarski, head of Baker McKenzie’s energy and infrastructure practice in Warsaw.
Poland is expanding at a time when Germany is in decline. With the end of cheap Russian gas pushing electricity and gas prices higher, the German Industry Federation (BDI) has warned that its members are relocating or scaling back.
The most totemic example is German chemicals giant BASF, which is winding down plants in Germany and axing thousands of jobs – all while expanding in China.
Olaf Scholz, the German chancellor, has acknowledged that the problems run deeper than just the gas price. He has vowed to reinvent his country as a renewable energy juggernaut, targeting 80pc green power by 2030.
However, experts say Berlin’s policies leave much to be desired – not least the stance on nuclear.
Just as the country is scrambling to ramp up clean electricity generation, it has shut its remaining nuclear power plants early. The final three closed in April – taking four gigawatts of carbon-free capacity off the grid overnight.
Poland, which shares a border with Ukraine and feels even more exposed to Russia, is heading in the opposite direction. The country, which generates around 70pc of its electricity by burning coal, is racing to roll out renewables including its first generation of nuclear power plants.
A fortnight ago, ministers signed a contract with US giant Westinghouse to build a AP1000 reactor slated to become operational by 2033 – with work beginning immediately. There are plans for atomic energy to meet up to two-fifths of the country’s future electricity needs in future.
At the same time, industrial groups including Industria and Synthos are looking to build small modular reactors (SMRs) with help from the likes of Rolls-Royce and GE Hitachi Nuclear Energy.
Mark Nelson, managing director of consultancy Radiant Energy, says the Polish nuclear programme could give factories easier access to stable, reliable sources of power – a selling point for foreign investors compared to a more volatile energy system in Germany that is more reliant on renewables, gas and coal.
He said: “Nuclear can guarantee you, year after year, hyper-cheap, hyper clean electricity. If you as an industrial firm know that… then you can justify investing in a big operation.”
Meanwhile, Germany’s uneasiness about the advantages of nuclear power can be clearly seen in its lobbying against French proposals to reform EU electricity markets. Paris wants to be able to sell nuclear power at cheaper rates that are closer to the cost of production but Germany is resisting.
Berlin’s decision to close its own nuclear plants early has also forced it to reopen smoke-belching coal power stations to get through next winter – a step experts view as self-defeating.
For now, Germany remains the undisputed champion of EU industry, boasting 26pc of the bloc’s manufacturing output compared to Poland’s 6pc. However, the gap is narrowing.
Poland will need to evolve to stay ahead, says Dvorak at Oxford Economics. “The richer the country becomes, the more wages grow – and so it becomes less competitive.
“There’s no choice but moving up in the value chain, if you want to retain the manufacturing sector.”
That will be little comfort to Scholz and his allies, however, with the journey to Warsaw feeling shorter than ever.
