Poland projection note OECD Economic Outlook November 2022

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Poland Real GDP growth is forecast to slow to 0.9% in 2023 due to higher energy prices as a result of Russia’s war of aggression against Ukraine, weaker domestic demand and a deteriorating external environment, before recovering to 2.4% in 2024. Inflation should peak in early 2023 but is likely to remain above target by the end of 2024.

Monetary policy should continue to tighten to prevent persistently high inflation. Fiscal policy support should be better targeted towards vulnerable households and supporting refugees and needs to avoid adding to inflationary pressure. In the medium term, greater decarbonisation and digitalisation, underpinned by policies to improve skills, would enhance energy security and lead to greener and stronger economic growth.

The economy is slowing as a result of higher energy prices Output in the second quarter of 2022 was only 0.3% higher than in the final quarter of 2021, amid high volatility. Private consumption grew, partly boosted by Ukrainian refugee spending and by the recovery from the pandemic, but investment slowed sharply. Nonetheless labour markets remain robust and wage growth has increased. Annual headline consumer price inflation rose to 15.7% in September, pushed up by higher energy and food prices, and core inflation reached 11.5%. Consumer and business confidence have continued to weaken and industrial production growth has slowed.

Poland

1. Consumer price index excluding food and energy.

Source: Eurostat, European Commission Business and Consumer Surveys; and OECD Economic Outlook 112 database.

StatLink 2 https://stat.link/5jl27s

OECD ECONOMIC OUTLOOK, VOLUME 2022 ISSUE 2: PRELIMINARY VERSION © OECD 2022

192 

Poland: Demand, output and prices 2019

2020

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 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 definition³ (% of GDP) Current account balance (% of GDP)

2022

2023

2024

Percentage changes, volume (2015 prices)

Current prices PLN billion

Poland

2021

2 288.5 1 322.3 412.4 432.9 2 167.6 36.1 2 203.8 1 217.4 1 132.7 84.7

-2.0 -3.4 4.9 -2.3 -1.6 -1.1 -2.8 -1.1 -2.4 0.6

6.8 6.3 5.0 2.1 5.2 3.0 8.3 12.5 16.1 -1.0

4.5 4.5 1.9 6.1 4.2 3.9 9.3 3.6 6.8 -1.6

0.9 2.0 3.0 1.2 2.0 -1.9 0.3 1.2 1.8 -0.3

2.4 2.5 2.1 3.5 2.6 0.0 2.4 1.5 1.5 0.0

_ _ _ _ _ _ _ _

4.3 3.4 3.8 3.2 7.3 -6.9 57.2 2.5

5.1 5.1 4.1 3.4 0.4 -1.8 53.8 -1.5

11.5 14.2 8.7 2.9 -1.3 -3.5 51.9 -3.7

8.9 10.8 7.8 3.5 1.5 -4.9 53.6 -3.5

5.4 6.6 4.4 3.8 -0.4 -4.0 54.9 -2.9

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 112 database.

StatLink 2 https://stat.link/x9vky4

Poland imports around 60% of its energy but it has diversified its sources of energy supply away from Russia. The exchange rate has depreciated since February and energy and food prices have surged, accounting for most of the increase in headline inflation. Around 1.3 million Ukrainian refugees (equivalent to 3.5% of the Polish population) are currently hosted in Poland. Most have been able to find work, but many are working in elementary jobs. This has temporarily alleviated labour shortages in parts of the economy. Direct trade with Russia, Belarus and Ukraine, representing 3-5% of GDP before 2022, has decreased sharply as a result of sanctions.

Fiscal policy is supporting the economy but monetary policy is tightening Fiscal policy will expand further to support households and firms against the impact of the war in 2023, before tightening in 2024. Existing support measures such as the Anti-Inflation Shield, which includes reductions in VAT and excise duties on energy and food, have been extended to the end of the year and support is assumed to continue in 2023. Heating subsidies have been introduced and electricity prices will remain capped. National defence spending is set to increase from 2.2% of GDP in 2022 to 3% by 2023 while healthcare spending is set to grow by 0.25% of GDP, adding to demand pressures. The government is also raising public sector salaries by 7.8% and increasing spending on social welfare programmes. Given persistently rising inflation, the key policy interest rate has been raised from 1.25% in November 2021 to 6.75% in September 2022 and has remained unchanged since then. Interest rates are anticipated to continue to rise until mid-2023 and reach 8%.

OECD ECONOMIC OUTLOOK, VOLUME 2022 ISSUE 2: PRELIMINARY VERSION © OECD 2022

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The economy is projected to slow amid high inflation and uncertainty Real GDP growth is projected to slow to 0.9% next year before picking up to 2.4% over 2024. High uncertainty and lower consumer and business confidence will hold back domestic demand over 2023.

Weaker growth in Poland’s major trading partners is projected to moderate export growth. Inflation will fall as retail energy price growth slows and tighter monetary policy takes effect, but will remain at 6.6% in 2024, above the central bank’s target range. Rising spare capacity will exert downward pressure on inflation while the economy recovers, partly driven by EU funds. There is considerable uncertainty and risks to the outlook remain tilted to the downside. Further escalation of the war would increase uncertainty, exacerbate inflation and strain public finances. Additional disruptions to energy supply could hit output and trade. Continued disagreements on strengthening the judiciary could further delay the disbursement of EU Recovery and Resilience Facility funds. On the upside, expansionary fiscal policy may prolong high inflation and require additional monetary tightening. A quick resolution of the war would boost growth and reduce inflation.

Policies should be coordinated and facilitate the green and digital transitions Fiscal policy should continue to shield the most vulnerable households from inflation but should be better targeted, designed to incentivise energy savings, and should avoid adding inflationary pressure in the economy. Further diversifying energy imports and increasing investment in renewables would improve energy security and ensure 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 in the labour market should continue to be supported through childcare provision and language training.

OECD ECONOMIC OUTLOOK, VOLUME 2022 ISSUE 2: PRELIMINARY VERSION © OECD 2022