Poland is racing ahead with military spending – but will it help or damage its economic growth story?

In the first article in a series on the Polish economy, we look at the country’s defence boom and its implications A short distance north from Warsaw along the Vistula river, camouflaged missile launchers roll through the quiet village of Czosnów. As recently as two years ago, their destination – a hi-tech weapons facility opened this month – had been a cornfield. Now, as Poland drives up defence investment at one of the fastest rates in the developed world, this rural spot has been transformed amid Europe’s response to Russian aggression and US disengagement. “Everyone has had to move twice as fast to meet the Polish needs,” says Jim Price, the managing director of MBDA Polska, the local subsidiary of the European multinational arms group. Based in the UK, the former Royal Marine says Poland is shifting from importing its weapons to manufacturing them at home. “When it became clear there is a need to defend Nato’s eastern flank, in the event of a war itself, they needed to be able to do things in the blink of an eye. So we decided to invest in-the country to create a facility. We had to build up our Polish subsidiary – and that means Polish jobs.” Poland’s defence budget has grown at a blistering pace. Since Vladimir Putin ordered Russian troops into Ukraine almost five years ago, spending as a share of Polish gross domestic product (GDP ) has more than doubled from 2.2% to 4.8% this year. In cash terms, this equates to $53bn (£39.8bn), the fourth-highest in the EU after Germany, France and Italy. Attention in Warsaw is clearly focused on the risk of an imminent Russian test of Nato resolve. However, there is also another motive: growing the economy.

Inside the soundproofed, airlock-style doors enclosing his office in Warsaw, Marcin Bosacki, Poland’s deputy foreign minister, says Russian aggression is heavily influencing the Polish government’s plans for economic development and cooperation with EU and Nato allies. “[It] is clearly benefiting Polish security; Polish defence, and the Polish economy as well,” he says. Strengthening economic ties in the pursuit of military readiness would discourage Putin (“a traditional Russian imperialist”) from attacking Nato, Bosacki adds. Hope remains for a diplomatic solution. This month, Donald Trump’s envoys Steve Witkoff and Jared Kushner held talks in Moscow with Putin and in Kyiv with the Ukrainian president, Volodymyr Zelenskyy. Next month, further negotiations are scheduled in Abu Dhabi. However, diplomatic sources believe Russia is unlikely to cede ground – rendering Nato’s demonstrations of military readiness critical. History shows defence and economics are closely intertwined. Statisticians first devised GDP as a metric in response to the 1930s Great Depression and needs of wartime planning to gauge the capacity of an economy. Joining the EU in 2004 and securing catch-up funds from Brussels – which was spent on new roads, railways, and other productivity-enhancing infrastructure – also helped. Annual output surpassed $1tn (£755bn) last year, with Poland among the fastest-growing EU countries at an annualised rate of 3.9% in the second quarter despite the global headwinds caused by the Iran war . However, Poland’s defence boom is not cost-free.

Nor has economic development helped it avoid political polarisation. The rising military budget is among the reasons why Poland is predicted to run the biggest fiscal deficit in the EU next year, at 7.1% of GDP. Last week, Moody’s downgraded the country’s long-term sovereign credit rating to the lowest level since 2002, amid an apparent lack of willingness to rebuild fiscal buffers. Leszek Kąsek, a Warsaw-based economist at ING Bank, said: “This path is not sustainable. You should ask people if Poland can maintain its growth story and whether politicians will be ready to adjust?” In the run-up to the general election next year, the defence of the country, support for Ukraine and EU relations will be highly politically charged. Outside the foreign ministry in Warsaw, protesters wave placards in a “Poles for peace” nationalist rally, organised by rightwing politicians opposed to the EU and its support for Ukraine. Inside the building’s marble halls, where the Polish flag appears to be positioned next to those of Nato and the EU at almost every opportunity, Bosacki says divisions over the benefits to Poland of membership to both institutions has emerged for the first time. This year, Poland’s president, Karol Nawrocki, who has backing from the rightwing Law and Justice party, attempted to block the Polish prime minister Donald Tusk’s liberal, pro-EU government from accessing €44bn (£38bn) of defence investment loans approved under the bloc’s security action for Europe (Safe) programme. “I think our right is so eager to regain power they will use anything,” Bosacki says. “Here for the first time, the opposition was [against doing] something which, in my opinion – and the opinion of the majority of Poles – is clearly benefiting Polish security, Polish defence and the Polish economy as well.” Through Safe, Warsaw secured the largest single disbursement in the loan programme.

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