Poland - OECD Economic Outlook June 2020

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Poland Strict confinement measures have taken a heavy toll on the economy. Assuming the current pandemic wanes progressively and further outbreaks are avoided (single-hit scenario), GDP is projected to contract by 7.4% in 2020, followed by a rebound of 4.8% in 2021. In the equally likely double-hit scenario, a second outbreak later in the year and renewed containment measures will lead to significantly weaker growth outcomes: a 9.5% contraction in 2020 and a 2.4% recovery in 2021. The government has launched sizeable financial support for businesses, largely non-refundable, and taken other extensive policy measures, notably for self-employed, temporary workers and small firms, which will help cushion employment losses and sustain household and business income. Yet, high unemployment will dent consumption growth, and lingering uncertainty is set to weigh on private investment, limiting the recovery and, especially in the doublehit scenario, rising risks of hysteresis effects.

Early policy response helped limit the spread of the pandemic. In supporting the recovery, the government should pave the way for a more efficient re-allocation of resources by boosting public investment in greener energy and technologies, which would also help reduce high air pollution. Also, additional support measures should be targeted to vulnerable households and solvent firms affected by cash-flow problems, especially in sectors still subject to containment restrictions.

Swift introduction of confinement measures limited the contagion Following the first positive cases in early March, Poland’s daily new COVID-19 infections surged until the beginning of April. However, new cases broadly stabilised thereafter and deaths per inhabitant remained low. About 60% of active cases are concentrated in four districts, including the Warsaw region. Had the pandemic developed more widely, this would have put the health system under considerable strains since Poland’s health spending per capita is only about 50% of the EU average and there is an acute shortage of health professionals. In addition, air pollution is substantial in Poland, which makes individuals vulnerable to acute respiratory illnesses.

Poland Another virus outbreak would dent the recovery

The labour market is set to deteriorate considerably

Real GDP

Unemployment rate

Index 2019Q4 = 100 105

Single-hit scenario

Single-hit scenario

Double-hit scenario

Double-hit scenario

% of labour force 12 10

100

8 95 6 90 4 85

80

2

2018

2019

2020

2021

0

0

2018

2019

2020

2021

0

Source: OECD Economic Outlook 107 database.

StatLink 2 https://doi.org/10.1787/888934139822 OECD ECONOMIC OUTLOOK VOLUME 2020 ISSUE 1: PRELIMINARY VERSION © OECD 2020

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Poland: Demand, output and prices (double-hit scenario) 2016

Poland: double-hit scenario 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

2017

Current prices PLN billion

1 861.1 1 088.4 333.1 335.0 1 756.5 29.5 1 786.0 971.4 896.3 75.1

Memorandum items GDP deflator Consumer price index Core inflation index2 Unemployment rate (% of labour force) General government financial balance (% of GDP) General government debt, Maastricht definition (% of GDP) Current account balance (% of GDP)

_ _ _ _ _ _ _

2018

2019

2020

2021

Percentage changes, volume (2010 prices)

4.9 4.5 2.9 4.0 4.1 0.8 4.9 9.5 9.8 0.3

5.3 4.5 3.7 9.4 5.3 0.5 5.6 7.0 7.6 0.0

4.1 3.8 4.9 7.2 4.7 -1.4 3.0 4.7 2.7 1.2

-9.5 -11.6 5.4 -13.3 -8.7 -0.8 -9.4 -11.7 -12.8 0.0

2.4 2.6 4.3 2.7 3.0 -0.4 2.5 3.9 3.9 0.2

1.9 2.1 0.7 4.9 -1.5 50.6 0.0

0.9 1.8 0.8 3.9 -0.2 49.0 -1.0

2.8 2.2 1.9 3.3 -0.7 46.1 0.5

3.0 2.9 2.4 7.9 -11.3 60.2 0.9

1.0 1.2 1.2 8.8 -10.3 68.8 0.4

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 107 database.

StatLink 2 https://doi.org/10.1787/888934138511

On 8 March, in the wake of the first confirmed cases, the authorities took rapid action to promote remote working, banned mass events, suspended schools and universities and progressively closed all cultural, accommodation, food and entertainment venues, together with shopping centres. In mid-March, international air and rail passenger traffic came to a halt and border controls were reinstated. A few days later, the government declared a state of emergency and implemented tighter confinement measures. The swift introduction of these measures helped limit the extent of the contagion, leading the authorities to ease many restrictions in May. Under strict sanitary standards and depending on local conditions, shopping centres, cultural institutions, hotels, restaurants and hairdressers were gradually allowed to reopen, as well as nurseries, pre-schools and lower primary grades. The government also authorised a partial opening of theatres, cinemas and sport centres and public gatherings of up to 150 people in early June.

The economy weakened substantially Following the national lockdown, consumer and business confidence dropped sharply in April to below levels observed during the global financial crisis but improved marginally in May. Accommodation and food services and the transportation sector have been hit particularly hard. Mobility to retail shops and restaurants decreased by 28% compared to a normal period and retail sales dropped by 23% year-on-year in April. Small and micro enterprises, with little financial reserves, are particularly at risk. Many of them decreased wages to reduce short-term losses and maintain liquidity without having to resort to redundancies. Yet, in April, the business employment decline was the largest since November 2009, and households and firms expect a surge in unemployment in the coming months, despite a cut in the supply of foreign workers due to border restrictions.

OECD ECONOMIC OUTLOOK VOLUME 2020 ISSUE 1: PRELIMINARY VERSION Š OECD 2020

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Poland: Demand, output and prices (single-hit scenario) 2016

Poland: single-hit scenario 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

2017

Current prices PLN billion

1 861.1 1 088.4 333.1 335.0 1 756.5 29.5 1 786.0 971.4 896.3 75.1

Memorandum items GDP deflator Consumer price index Core inflation index2 Unemployment rate (% of labour force) General government financial balance (% of GDP) General government debt, Maastricht definition (% of GDP) Current account balance (% of GDP)

_ _ _ _ _ _ _

2018

2019

2020

2021

Percentage changes, volume (2010 prices)

4.9 4.5 2.9 4.0 4.1 0.8 4.9 9.5 9.8 0.3

5.3 4.5 3.7 9.4 5.3 0.5 5.6 7.0 7.6 0.0

4.1 3.8 4.9 7.2 4.7 -1.4 3.0 4.7 2.7 1.2

-7.4 -9.1 5.3 -10.6 -6.7 -0.8 -7.4 -9.0 -10.1 0.2

4.8 4.9 4.4 6.1 5.0 -0.1 4.9 10.4 10.7 0.4

1.9 2.1 0.7 4.9 -1.5 50.6 0.0

0.9 1.8 0.8 3.9 -0.2 49.0 -1.0

2.8 2.2 1.9 3.3 -0.7 46.1 0.5

3.0 3.0 2.4 7.3 -9.4 57.3 1.0

1.4 1.7 1.8 5.8 -7.1 61.6 0.8

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 107 database.

StatLink 2 https://doi.org/10.1787/888934138530

Policy support is widespread The anti-crisis package foresees discretionary measures worth about 3.2% of GDP in 2020. In a welcome move, it aims at preserving jobs by sustaining business liquidity, boosting healthcare spending and encouraging infrastructure investment during the recovery. The announced measures, which include tax deferrals, targeted exemptions from social security payments and wage subsidies, extend income support to numerous self-employed and temporary workers. To avoid widening inequalities due to the pandemic, the government is set to enhance transfers to local authorities and postpone loan repayments, for up to three months, for individuals having lost their job or main source of income. It also plans to raise unemployment benefits and introduce a 3-month solidarity allowance payable to the most disadvantaged jobseekers. A subsidised micro-loan facility supports the cash-flows of the smallest firms, while a loan guarantee scheme cover loans up to PLN 100 billion (4.4% of GDP) for all firms with no tax arrears, in proportion to their size. Financed through state-guaranteed bonds issued by the Polish Development Fund, the scheme could disburse around 60% of its envelope as grants, provided firms do not fire staff during the loan period. In addition, the central bank cut the policy rate to 0.1% at the end of May, strengthened banks’ liquidity through reduced reserve requirements, started an asset purchase programme – including state-guaranteed debt securities – and introduced bank lending support programme. These measures eased monetary conditions and smoothed the financing of the fiscal anti-crisis measures.

OECD ECONOMIC OUTLOOK VOLUME 2020 ISSUE 1: PRELIMINARY VERSION © OECD 2020

286 _

The path to recovery is subject to many risks In the scenario of a single pandemic outbreak (single-hit scenario), GDP growth will be limited to 4.8% in 2021, after a deep recession in 2020. The end of the two-month lockdown in May will allow activity to resume only gradually, with full opening of transport, hospitality and recreational services expected only over summer. Postponed consumption and delayed investment decisions will support the recovery, but the sharp rise in unemployment and uncertainties around the extent of global value chain destructions will dent household and business confidence. The double-hit scenario of a second pandemic outbreak in the final quarter of the year, and its associated containment measures, will further weaken the recovery (to 2.4% in 2021) and increase the risks of hysteresis effects due to longer unemployment spells and rising insolvencies, notably among self-employed and temporary workers. In addition, a slower euro area recovery, together with a more pronounced deterioration of the outlook for the global automotive industry and business services, will reduce export prospects in both scenarios.

Well-targeted policies will be key to an inclusive recovery The authorities will need to ensure that the business support measures are effective for both large and small firms. The large share of micro-firms, often with low productivity, would be particularly vulnerable if containment measures had to be reinstated during a second outbreak. Ensuring the effective take-up of short-term work schemes by micro-firms may be a challenge and this could be complemented by further cash payments. Suspending the Sunday ban on retail trade and deliveries would also help the retail sector and raise the supply of essential goods for households. If the crisis were to be prolonged and banks’ profitability were to decline further (banks have agreed to postpone loan repayments for both consumers and businesses), the cancelation (or suspension) of the banking tax should be envisaged. Further fiscal stimulus through temporary and well-targeted programmes may be required to support the recovery.

Bringing forward needed infrastructure and green investment would boost future productivity growth, notably by tackling widespread air pollution, which severely harms people’s health.

OECD ECONOMIC OUTLOOK VOLUME 2020 ISSUE 1: PRELIMINARY VERSION © OECD 2020