Poland
Real GDP growth is projected to slow to 0.9% in 2023 as high uncertainty, high inflation and tighter monetary policy weaken demand growth, before recovering to 2.1% in 2024. EU Recovery and Resilience funds are expected to boost investment, but further delays would entail lower growth. Inflation peaked earlier this year, but it is likely to remain elevated and above target by the end of 2024 as domestic inflationary pressure from robust labour markets and fiscal spending continues.
Interest rates should be raised further to prevent persistently high inflation. Fiscal policy needs to be well calibrated to avoid adding inflationary pressure in the economy while ensuring fiscal support better targets vulnerable households. In the medium term, accelerated decarbonisation and digitalisation, supported by policies to improve skills, would boost energy security and lead to greener and stronger economic growth.
The domestic economy has weakened amid high inflation and uncertainty
Output grew by 5.4% in 2022 but quarterly growth was volatile, and the economy slowed considerably over the year, due to falling private consumption and slowing investment and inventory growth. While GDP rose by 3.8% in the first quarter of 2023 relative to the previous quarter, output levels were broadly flat compared to a year ago. Consumer and business confidence have improved somewhat, but they remain below levels seen before Russia’s war of aggression against Ukraine. Retail sales and industrial production point to continued weakness in output. Headline inflation peaked in February but is still high, at 13% in May, pushed up by food and energy. Core inflation remains elevated, at 12.2% in April.
Poland
Poland: Demand, output and prices
1. Contributions to changes in real GDP, actual amount in the first column.
2. Consumer price index excluding food and energy.
3. The Maastricht definition of general government debt includes only loans, debt securities, and currency and deposits, with debt at face value rather than market value.
Source: OECD Economic Outlook 113 database.
StatLink2 https://stat.link/j5bsli
The war in Ukraine has had a significant effect on the labour market. By March 2023, around 1.6 million Ukrainians had settled in Poland, equivalent to 4% of the population, even though many men returned to Ukraine. Half of the refugees are adults, and most have found work, although often in lower-skilled occupations, alleviating some of the wage pressure in the labour market. The unemployment rate remains low at around 3% and nominal wage growth is high, partly boosted by a 20% rise in the national minimum wage. However, there are some signs that labour demand is softening, with the number of posted vacancies a fifth lower than at the start of 2022.
Monetary policy remains restrictive while fiscal support continues
Fiscal policy continues to support the economy. The Anti-Inflation Shields have been largely replaced by electricity and gas price caps for households and businesses this year while the zero VAT rate on food and subsidies to energy-intensive companies have been maintained. These new measures are expected to cost up to 1.9% of GDP and should expire by the end of 2023. National defence spending will rise from 2.2% of GDP in 2022 to 3% of GDP in 2023 while health spending will increase as well. This will lead to a widening of the fiscal deficit in 2023 although it is expected to start narrowing in 2024. Monetary policy has remained unchanged, with the policy rate at 6.75% since September 2022. Given sizeable fiscal support in the economy and persistent inflationary pressure, the policy interest rate should rise further to 7.25% before beginning to ease in the second half of 2024.
The economy is projected to slow before recovering as inflation gradually falls
Real GDP growth is projected to slow significantly to 0.9% in 2023, as the effects of high inflation, high uncertainty and restrictive monetary policy bear down on consumption and investment. As these effects recede, GDP growth is expected to gradually recover to 2.1% in 2024, boosted by EU funds. With the external environment expected to improve, exports should support growth. Having peaked in the first quarter, inflation is forecast to continue declining, as growth in mostly regulated energy prices moderates, averaging 12.4% over 2023. Domestic inflationary pressure from the labour market and fiscal spending is likely to ease somewhat over 2024 leading inflation to slowly decline to 4.8%. There are risks to the outlook. Continued disagreements between the Polish government and the European Commission on strengthening the judiciary could further delay the disbursement of EU Recovery and Resilience funds. Any additional fiscal spending in the run-up to the autumn elections may prolong high inflation, requiring tighter monetary policy for longer.
Policies should be coordinated and facilitate the green and digital transitions
Fiscal policy should avoid adding to inflationary pressure in the economy. It should continue to protect the most vulnerable households from inflation but should be better targeted and designed to incentivise energy savings. Further diversification of energy imports and increasing investment in renewables would improve energy security and contribute to greener growth. To facilitate the digital and green transitions and address skills shortages, labour market policies should upgrade weak basic skills and improve access to lifelong training for older adults, the unemployed and the low-skilled. Integration of refugees, mostly comprising women with children, should continue through childcare, schooling and language training. To address these long-term spending pressures and ensure sustainable public finances, the government needs to develop a credible medium-term fiscal strategy and should establish an independent fiscal council.