Poland - OECD Economic Outlook 2019

 189

Poland Economic growth will remain robust, although decreasing to 3.8% in 2020 and 3% in 2021. Both private and public investment will decelerate, and low world trade growth will limit exports. Private consumption growth will decline gradually as the impact of new social transfers and tax cuts fade. Decreasing employment gains and the steady decline of the labour force will lead to a progressive reduction in the unemployment rate.

The fiscal stance is pro-cyclical, remaining expansionary in 2020. This will help to offset the impact of weak global conditions in 2020, but the composition of the fiscal easing package could provide more support to address long-term issues. The central bank is expected to keep its policy interest rate unchanged, focusing on declining growth prospects rather than on the medium-term inflation outlook. Structural policies will need to support seniors’ and female employment, better integrate immigrants in the labour market, and ensure environmentally sustainable development.

Domestic demand is driving growth GDP growth hasslowed in 2019, down from a post-crisis peak of 5.1% in 2018. Domestic demand has remained strong, supported by both private consumption and investment. Private consumption is firm due to a booming labour market, and investment has benefitted from fast disbursements of EU funds and still accommodative financial conditions. However, the slowdown in the euro area has already dented export growth. Employment gains and a shrinking labour force have led to a historically low unemployment rate and rising labour shortages. As a result, increasing labour costs continue to drive up inflation.

Poland Fiscal policy has turned expansionary % pts 3

The labour market will remain tight

Annual change in the underlying primary balance¹

% of labour force 20

Y-o-y % changes 10 ← Unemployment rate

18 2 1 0 -1 -2 -3

2006

2008

2010

2012

2014

2016

2018

2020

0

9

Compensation rate² →

16

8

14

7

12

6

10

5

8

4

6

3

4

2

2

1

0

2006

2008

2010

2012

2014

2016

2018

2020

0

1. Measured in per cent of potential GDP. 2. Four-quarter moving average.

Source: OECD Economic Outlook 106 database.

StatLink 2 https://doi.org/10.1787/888934045829

OECD ECONOMIC OUTLOOK, VOLUME 2019 ISSUE 2: PRELIMINARY VERSION © OECD 2019

190 

Poland: Demand, output and prices

2016

2017

Current prices PLN billion

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

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) 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)

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

5.1 4.2 3.6 8.9 5.0 0.4 5.3 7.0 7.6 0.0

4.3 4.2 3.9 8.6 5.0 -0.5 4.4 4.5 4.7 0.1

3.8 4.7 4.4 4.6 4.6 0.1 4.6 3.0 4.2 -0.5

3.0 3.8 3.4 3.3 3.6 0.0 3.6 3.2 4.3 -0.5

1.9 2.1 0.7 4.9 0.4 -1.5 50.6 0.0

1.1 1.8 0.8 3.9 0.3 -0.2 48.9 -1.0

3.0 2.3 1.9 3.4 1.4 -1.2 47.4 -0.1

3.0 2.9 2.5 3.1 1.9 -0.6 45.6 -0.6

2.9 2.8 2.8 2.8 1.5 -1.4 45.0 -0.9

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 106 database.

StatLink 2 https://doi.org/10.1787/888934046760

Structural reforms would help to raise long-term growth Despite robust growth, a strongly expansionary fiscal policy in 2019 and 2020 will push up the budget deficit from 0.2% of GDP in 2018 to 1.4% of GDP in 2021. In 2020, the extension of the family support scheme, pension increases and public wage increase will boost public expenditures and domestic demand.

Yet, temporary revenues, notably from another change to the pension system, worth around 0.7% of GDP in 2020 and 2021, will help limit the deficit. A tighter fiscal stance would be appropriate to sustain rising ageing-related spending pressures over the medium term.

Monetary policy has been appropriately accommodative given subdued inflationary pressures. Yet, wage growth is projected to remain robust, reflecting increasing capacity constraints, steady minimum-wage increases and public-sector pay rises. Increasing labour costs, and energy price and tobacco tax increases, will push prices up in 2020-21. Though the central bank is expected to keep its interest rate constant in the coming two years, initiating an earlier tightening of interest rates would help to contain inflationary pressures.

Structural reforms would boost medium-term growth by addressing the decline in the working-age population and low productivity. Increasing access to high-quality early childcare would facilitate combining work with family life and improve opportunities for women’s labour force participation and under-privileged children. Strong immigration from neighbouring countries in Eastern Europe is alleviating labour shortages, but putting in place comprehensive monitoring and integration policies would help attract and retain skilled

OECD ECONOMIC OUTLOOK, VOLUME 2019 ISSUE 2: PRELIMINARY VERSION © OECD 2019

ď ź 191 migrants. Demographic challenges could be further addressed by encouraging longer working lives and aligning male and female retirement ages. Finally, predictable and long-term climate change policies and adequate tax incentives are necessary to improve environmental and health outcomes.

Growth will gradually ease Output growth is projected to moderate. Investment growth will decline on the back of lower absorption of EU funds and weaker export prospects. Private consumption growth will temporarily hold up due to rising social transfers and wages. Import growth is projected to outpace increases in exports, and the current account deficit will widen. Escalations of trade tensions and continued uncertainty about an eventual Brexit risk further lowering the growth of exports and private investment. A possible decline in the inflow of foreign workers could spur labour shortages and be a drag on growth. On the other hand, faster-than-projected wage growth and higher household confidence could boost private consumption.

OECD ECONOMIC OUTLOOK, VOLUME 2019 ISSUE 2: PRELIMINARY VERSION Š OECD 2019