REPORT BY PROF. KONRAD RACZKOWSKI “CHALLENGES IN GLOBAL TRADE 2024”

A report by Prof. Konrad Raczkowski titled: “Challenges in Global Trade 2024” was published in mid-2024 by UKSW Scientific Publishing. (ISBN 978-83-8281-463-7).

From the foreword

Global trade has been, is and will continue to be a key component of the modern economy enabling the exchange of goods, services and capital between countries around the world. Despite the many benefits of trade globalization, there are many challenges that disrupt and limit its efficiency and sustainability. Increasingly, there is growing protectionism and a trend toward trade restrictions by some countries. In 2023 alone, more than 2,500 restrictions or shielding approaches discriminating against international trade were implemented. The introduction of tariffs, non-tariff barriers and import restrictions raises the risk of reducing international trade and creating disruptions in global supply chains, which can limit economic growth and lead to higher prices for consumers. Ultimately, this translates into economic indicators and even the need for changes in economic policies.

Developed countries often enjoy the advantage of expanded industrial and technological sectors, while developing countries may find it difficult to compete in global markets. This can lead to further widening inequalities between countries and social and economic problems such as poverty and unemployment. Environmental issues are also becoming an increasingly important challenge in the context of global trade. Some forms of economic activity, especially those involving intensive use of natural resources, can lead to environmental degradation and climate change. Therefore, there is a need to develop sustainable trade strategies that take into account environmental protection and contribute to achieving the Sustainable Development Goals. However, these goals cannot and should not be achieved at any cost, such as by eliminating jobs, creating policies of bureaucratic coercion and perpetual debt in the name of unprofitable, unstable and inefficient investments.

The biggest threat to global trade in 2024 will be geopolitical tensions and the resulting territorial disputes, struggles over strategic interests, competition for dominance between global powers (like the United States and China), and ideological and cultural conflicts. In the world of commerce, everyone has heard of companies such as Blockbuster, Kodak, Toys “R” Us and Nokia that failed to adapt to trends and global competition and went out of business. Today, companies can do this in a matter of months or so, either through global competition or local or regional changes that they fail to recognize in time. Or they can thrive by taking on new markets – something I wish for all employees and shareholders of trading companies.

I hope that this report will help you better anticipate the future and take into account the risk profile of the market segment you are operating in, while it will help policymakers make policy decisions that will be reflected in logical legislation that safeguards commercial interests and legal predictability of economic trading in Poland.

Prof. dr hab. Konrad Raczkowski

The report, entitled Challenges in Global Trade 2024, was produced in cooperation between the Polish Trade and Distribution Organization and the Center for the World Economy at UKSW, under the direction of Prof. Konrad Raczkowski. The publication analyzes the current economic and geopolitical situation in the world and presents perspectives for the development of the global, European and Polish economies. The report defines the framework in which the trade sector will operate in the coming years and identifies key challenges. EuroCommerce, the Brussels-based European trade organization, has consistently taken steps to maintain the strong position of European trade on the international stage.

The Polish Trade and Distribution Organization brings together 19 of the largest international retail chains operating in Poland: Auchan, Carrefour, Castorama, Decathlon, E.Leclerc, IKEA, Biedronka, JYSK, Kaufland, KiK, Leroy Merlin, Lidl, MediaMarktSaturn, Netto, OBI, Pepco, Schiever, Transgourmet, Żabka. POHiD’s mission is to support trade in Poland and to be committed to conducting ethical business while respecting the principles of economic freedom and free market access for all businesses.

POHiD-affiliated retail chains have been an important part of Poland’s economic landscape for more than 30 years, driving trade and the economy as a whole. They have invested more than 60 billion euros in our country, created more than 250,000 jobs, cooperate with more than 5,000 Polish suppliers and producers of agricultural products, and offer 95 percent of Polish products in their assortment. They have been taking steps to open the way for more than 250 Polish producers and suppliers to international markets for years. The value of exports of Polish products through foreign branches of trade concerns amounts to PLN 20 billion annually. The continuing COVID-19 restrictions, the war in Ukraine, the biggest energy crisis since the 1970s and galloping inflation have contributed to the slowdown of the global economy. Polish commerce has been hit hard by the global economic crisis, facing high operating costs on the one hand, and a decline in consumption or changing shopping baskets on the other.

EuroCommerce and POHiD are taking a number of measures to mitigate the negative effects of inflation both in Poland and Europe. According to a McKinsey report, prepared in cooperation with EuroCommerce, food prices in Poland are among the most competitive in the European Union. Anti-inflationary policies are resulting in increased pressure on already low margins in the trade. Additional challenges for the sector include outlays in the areas of sustainability and digitization, as well as rising costs due to rising energy prices, inflation, supply chain disruptions and the war in Ukraine. According to the report, the trade sector at the European level requires a transformation by 2030 in the areas of sustainability, digitization, skills and talent, for which the sector will incur an investment of around €600 billion. These investments are a sine qua non for maintaining the future growth and competitiveness of the retail market in Europe and Poland. Retail chains affiliated with POHiD have a significant impact on price stability in the Polish market.

High competitiveness within the sector in Poland has an inhibiting effect on product price growth. The trade has invested huge resources so as not to pass on the entire increase in purchase prices of goods from producers to customers. Thanks to the scale of the business, large purchasing volumes, improved energy efficiency and low margins, retail prices are kept as low as possible.

Since the beginning of the pandemic, and especially since the outbreak of the war in Ukraine, retail chains have pursued a price-promotion policy aimed at supporting Polish families struggling to cope with the negative effects of inflation. The significant slowdown in consumption in 2023 was a consequence of consumers’ declining purchasing power, and the latest March readings from the Central Statistical Office (CSO) may indicate the beginning of a trend of consumption growth that would contribute to greater economic growth. However, surveys by independent research centers indicate that 70 percent of Poles are cutting back on living expenses, including food. Among the lowest-income group, 66 percent of consumers are already saving on food.

POHiD member companies absorb the costs of price reductions, among other margin cuts, avoiding passing the costs on to suppliers or consumers. In this way, they effectively protect Polish families from food poverty, and in many cases prevent stigmatization and social exclusion.

An important risk factor for retail price stability is the legislative environment. Trade faces a trade tax and many fiscal burdens. Retail chains are among the largest CIT payers, ranking second in terms of the amount of tributes paid. In 2021, revenues to the state budget totaled PLN 5.7 billion, of which PLN 3.1 billion was CIT and PLN 2.6 billion was trade tax. In 2022, the value of the trade tax increased to PLN 3.3 billion, and forecasts of state budget execution for 2023 will approach the vicinity of PLN 4 billion.

Rising prices of raw materials and energy carriers entail rising costs in the supply chain, posing a huge challenge for the industry. Faced with the energy crisis and rising electricity prices, retail chains are pursuing energy conservation policies. They are also investing in renewable energy sources. In this way, they are not only reducing their energy consumption costs, but also reducing their carbon footprint.

Renata Juszkiewicz

President of the Board of the POHiD

Vice-President EuroCommerce

Conclusions and recommendations

1 According to the International Monetary Fund’s baseline forecast, the global economy has shown great resilience to the transmission of monetary policy and higher interest rates to the real sphere. Global GDP is expected to grow by 3.2% between 2024 and 2025, similar to 2023, while maintaining the trend of structural frictions impeding the transfer of labor and capital to productive enterprises.

2. in 2023. 91% of global enterprises increased their revenues, 56% of which – above average annual inflation levels. Nearly 80% of enterprises used price increases as the main tool to protect existing margins and shield against rising costs. The highest average annual price increases were recorded by companies in the Middle East (15%) and Central and South America (12%).

3. The main risks to the global economy in 20242 relate to rising geopolitical and financial tensions, the economic slowdown in China, trade fragmentation and the costs and processes of addressing climate change.

4 World trade growth in 2023, excluding the global recession, was the weakest in nearly 50 years: down 3% to $31 trillion. The declines (-5%) are in goods trade and the reverse trend (+8%) in services trade due to the recovery of the tourism market3. Trade is expected to recover in 2024, but at the expense of shifting companies from global value chains to national or regional supply chains. The biggest losers of change will be developing and other economies, which will not be able to secure competitive legal and tax regimes and relatively cheap energy sources.

5 The EU is the world’s largest exporter of industrial goods and services, and the largest export market for some 80 countries. The vast majority of EU countries traded more in the EU internal market than with non-EU countries. The largest non-EU market to which EU countries export is the US. In contrast, the largest volume of imports to the EU came from China.

6. individual countries and country integration groups implemented more than 53,000 government interventions discriminating against foreign trade interests between 2008 and 2024 (April). In 2023 alone, more than 2.5 thousand so-called harmful interventions for international trade, which are the opposite of trade liberalizing policies, were observed. These mainly involved trade subsidies (including export subsidies), trade-related investment measures, tariff measures or conditional trade protection measures.

7 Despite the not-so-good sentiment in the eurozone, leading indicators may point to a relative improvement in investor confidence and economic activity in 2024. However, it should be remembered that economic activity is showing more of a sideways stagnant trend as a result of reduced domestic demand and reduced purchasing power of household income.