194
Poland Economic growth will decline to a still robust pace of 4.2% in 2019 and 3.5% in 2020, in part due to the wider slowdown in Europe. The decline in world trade growth will weigh on exports. However, an increase in social transfers and tax cuts will bolster private consumption. Accelerating wages will underpin a pick-up in inflation. Fiscal policy is turning expansionary in 2019-20, widening the budget deficit despite strong economic growth. A tighter fiscal stance would be desirable to confront demographic challenges and strengthen the fiscal position to tackle a potential downturn. The central bank is projected to gradually increase interest rates to counter rising inflationary pressures. Policies will need to bolster seniors’ and female employment, while favouring skilled immigration. Domestic demand is driving growth GDP growth peaked at 5.1% in 2018, the strongest annual growth since 2007. Domestic demand remains strong, with private consumption growing firmly thanks to a booming labour market, and investment being supported by fast disbursements of EU funds and accommodative monetary policy. However, the slowdown in the euro area has reduced export growth. The labour market remains tight, as gains in employment and a shrinking labour force have led to record-low levels of unemployment. Firms increasingly report labour shortages as a factor limiting production in the manufacturing sector. Underlying inflation remains low, even though it has picked up of late.
Poland Labour market conditions remain tight Index 2006Q1=100 125
Fiscal policy is turning expansionary Annual change in the underlying primary balance¹
% of labour force 18
% pts 3
← Total employment Unemployment rate →
120
15
2
115
12
1
110
9
105
6
-1
100
3
-2
95
2006
2008
2010
2012
2014
2016
2018
2020
0
0
0
2006
2008
2010
2012
2014
2016
2018
2020
-3
1. Measured in percentage points of potential GDP. Source: OECD Economic Outlook 105 database. StatLink 2 https://doi.org/10.1787/888933934831
OECD ECONOMIC OUTLOOK, VOLUME 2019 ISSUE 1: PRELIMINARY VERSION © OECD 2019
195
Poland: Demand, production and prices
2015
Poland GDP at market prices Private consumption Government consumption Gross fixed capital formation Final domestic demand Stockbuilding1 Total domestic demand Exports of goods and services Imports of goods and services Net exports1
2016
Current prices PLN billion
1 800.2 1 051.5 324.7 361.5 1 737.7 6.8 1 744.5 891.1 835.4 55.7
Memorandum items GDP deflator Consumer price index Core inflation index2 Unemployment rate (% of labour force) Household saving ratio, net (% of disposable income) General government financial balance (% of GDP) General government debt, Maastricht definition (% of GDP) Current account balance (% of GDP)
_ _ _ _ _ _ _ _
2017
2018
2019
2020
Percentage changes, volume (2010 prices)
3.1 3.9 1.9 -8.2 1.0 1.2 2.3 8.8 7.6 0.8
4.8 4.9 3.5 3.9 4.4 0.5 4.9 9.5 10.0 0.1
5.1 4.5 3.6 7.3 4.9 0.7 5.5 6.2 7.0 -0.1
4.2 4.7 5.3 5.8 5.0 0.0 4.9 6.3 6.9 -0.1
3.5 4.2 4.8 5.6 4.6 0.0 4.5 4.9 6.8 -0.9
0.3 -0.7 -0.2 6.1 1.5 -2.2 54.2 -0.5
2.0 2.1 0.7 4.9 -0.9 -1.5 50.6 0.1
1.3 1.8 0.8 3.9 -0.4 -0.4 48.9 -0.7
2.2 1.9 1.7 3.5 0.9 -1.4 47.9 -1.2
3.2 3.0 2.9 3.3 1.3 -1.0 46.6 -1.6
1. Contributions to changes in real GDP, actual amount in the first column. 2. Consumer price index excluding food and energy. Source: OECD Economic Outlook 105 database.
StatLink 2 https://doi.org/10.1787/888933935724
Structural reforms would help to raise long-term growth Fiscal policy is turning strongly expansionary, as the authorities have unveiled a major fiscal stimulus package. The 500+ programme will no longer be means-tested for the first child from July 2019, pensioners will receive a one-off bonus in 2019, and there will be cuts to personal income taxes from 2020. However, one-off revenues, notably due to changes in the pension system, will reduce the budget deficit by about one percentage point of GDP in 2020, and an increase in social security contributions will also limit the budget deficit in 2020. Even so, a tighter fiscal stance would be appropriate. Eliminating some of the reduced VAT rates that do not benefit low-income households and ending the preferential tax treatment for the self-employed would raise revenues. Implementing broad-based spending reviews and reviewing energy subsidies would help achieve budget savings. Monetary policy has been appropriately accommodative given subdued inflationary pressures. Yet, wages are projected to accelerate further, reflecting binding capacity constraints and public-sector pay rises. The central bank is assumed to initiate a tightening cycle from the summer of 2019 to counter rising inflationary pressures. To address the decline in the working-age population, the authorities will need to increase women’s labour force participation, raise the effective retirement age and put in place policies in favour of high-skilled immigrants. Increasing access to high-quality early childcare will facilitate combining work with family life and improve opportunities for under-privileged children. Strong immigration from neighbours in Eastern Europe is alleviating labour shortages, but putting in place comprehensive monitoring and integration policies would help Poland attract and retain skilled migrants. Stepping up efforts to inform the public about
OECD ECONOMIC OUTLOOK, VOLUME 2019 ISSUE 1: PRELIMINARY VERSION © OECD 2019
196 ď ź the impact of working longer on pension income would contribute to increasing the effective retirement age. Making corrections to the pension system, such as aligning male and female retirement ages and indexing them to life expectancy, would also help address demographic challenges. Participation in adult training is limited, and there is a need to boost digital skills, notably among older workers. Raising skills by promoting lifelong learning would create more learning opportunities in line with labour market needs and enhance long-term employment prospects.
Growth is projected to moderate Output growth is projected to gradually ease. Private consumption will continue to grow strongly thanks to the tight labour market and rising social transfers. However, investment growth will moderate on the back of lower absorption of EU funds and less supportive export prospects. Import growth is projected to outpace increases in exports, widening the current account deficit. Downside risks include a possible decline in the inflow of foreign workers, which could spur labour shortages and be a drag on growth. On the other hand, a faster growth in private consumption is a key upside risk as wage pressures could accelerate more than projected on the back of a booming labour market.
OECD ECONOMIC OUTLOOK, VOLUME 2019 ISSUE 1: PRELIMINARY VERSION Š OECD 2019