## Europe’s Economic Revival

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**Canonical URL:** [Europe’s Economic Revival](https://www.imf.org/en/publications/fandd/issues/2025/06/europes-economic-revival-andrzej-domanski)

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## Bibliographic details
- Authors: ANDRZEJ DOMANSKI
- Published: June 2, 2025

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### Overview
- Europe is experiencing a geopolitical awakening that will reshape the continent’s economic landscape.
- Poland’s transformation is presented as an inspirational model for the EU.
- Key Poland performance and historical figures:
  - Living standards have leapt 3.6 times, from a per capita income of $13,100 in 1990 to $47,100 today in real terms.
  - This year Poland is set to grow almost 4 percent, one of the fastest rates among the EU’s largest economies.
  - Since 1989, Polish GDP has grown by 220 percent in real terms.
  - Unemployment has dropped from double-digit rates in the 1990s to less than 3 percent today, one of the lowest in the EU.
  - Poland’s geopolitical turning point occurred in 1989 when communism fell and the post-communist economy began reform and integration.

### Foundations of success
- Core drivers highlighted:
  - Strong education system and expanded higher education: the higher-education sector now comprises over 350 universities and colleges.
  - International integration: accession to the World Trade Organization, the Organisation for Economic Co-operation and Development, NATO, and the European Union secured integration into the transatlantic community, attracting investment and facilitating technology transfer.
  - Measurable human capital and education outcomes:
    - Poland ranks 23rd in the World Bank’s Human Capital Index.
    - Poland ranks 24th in the Penn World Tables’ human capital index.
    - Poland achieves above-average performance in the Program for International Student Assessment—surpassing the EU average on all these measures.
  - Digital adoption and leapfrogging: early adoption of broadband internet, modern financial-sector IT systems without legacy constraints, and state-led digitalization of public services (digital IDs, automated tax filing, online government services).

### Convergence, investment, and trade
- Investment and export-led expansion as central mechanisms:
  - Between 2004 and 2023, Poland attracted over $310 billion in foreign investment, almost half of the total of the eight states that joined the EU in 2004.
  - Since joining the EU, Polish exports of goods and services have increased nearly 3.5 times.
  - Poland has improved technological sophistication, with strengths in middle-technology goods and a consistent surplus in service exports.
  - The Polish Economic Institute estimates that European integration has boosted Poland’s GDP by 40 percent compared with a hypothetical scenario in which Poland never joined the EU.
- Roles of inward investment:
  - Bridging Poland’s capital gap.
  - Facilitating technology transfer and job creation.
- EU single market benefits and limitations:
  - Access to the single market enabled specialization and efficiency gains.
  - However, the single market remains incomplete and constrained by internal EU barriers.

### New challenges and policy priorities
- Identified contemporary challenges as Poland closes the income gap:
  - The energy transition.
  - Capital market development.
  - Advancing technological sophistication.
  - Providing greater security in response to Russia’s invasion of Ukraine.
- Evolving role within the EU:
  - Transition from primarily a net recipient of EU funds to taking on a greater financial role within the EU budget and contributing actively to the single market through trade.
  - Poland has surpassed China as an export market for German products.
- Specific structural constraints and comparative disadvantages:
  - IMF estimates cited: nontariff barriers within the single market are equivalent to a 44 percent tariff on industrial goods and a 110 percent tariff on services.
  - European industry faces electricity and gas prices up to three times higher than those of main trading partners (the US and China).
  - Research and joint funding concerns impede pan-European scale initiatives in cutting-edge technologies.
  - Regulatory inconsistencies between countries continue to pose challenges for the private sector.
- Security and defense:
  - Poland’s defense spending is described as the largest in NATO relative to GDP.

### Policy recommendations and strategic implications
- For Poland and the EU to seize the moment and revive growth:
  - Deepen and complete the single market to allow firms to scale up and to prevent homegrown innovations from being confined within national borders.
  - Pursue deregulation and economies of scale across the EU; reduce internal nontariff barriers.
  - Execute the energy transition wisely, addressing price disparities and leveraging clean-industry value chains for competitive advantage.
  - Foster joint funding and cooperation for large-scale research on cutting-edge technologies.
  - Simplify and harmonize regulation to reduce burdens on the private sector and to enable cross-border scaling of firms.
  - Continue cooperation on security challenges to sustain the peace dividend and provide stability for economic activity.
- Broader takeaways:
  - The Polish example underscores the importance of sustained structural reforms, human capital development, openness to trade and investment, and societal engagement.
  - Major positive change is possible even during times of global turbulence; Europe’s geopolitical awakening can catalyze a new wave of integration and prosperity.

*Andrzej Domański, “Europe’s Economic Revival,” F&D Magazine, June 2025.*

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## Content in this bundle

- **Europe's Economic Revival**
  - [Europe's Economic Revival (Markdown version)](/-/media/files/publications/fandd/article/2025/06/domanski.pdf.md){rel="alternate" type="text/markdown"}
  - [Europe's Economic Revival (PDF)](/-/media/files/publications/fandd/article/2025/06/domanski.pdf){rel="external" type="application/pdf"}

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_Source: https://www.imf.org/en/publications/fandd/issues/2025/06/europes-economic-revival-andrzej-domanski_