Recent Economic Developments
Booming domestic demand boosted real GDP growth to 4.6% in 2017 from 2.9% in 2016. Powered by an extremely strong labor market and social spending (mainly for the Family 500+ program), private consumption grew by 4.8%, adding 2.8 percentage points to GDP growth.
Labor market conditions have tightened further. The ratio of vacancies to unemployment has shot past 10%; in four years, the number of low-skilled unemployed has been cut in half and now accounts for just 30% of unemployment. Moreover, for the first time since the transition, long-term unemployment dipped below 500,000. Employment rates have continued to rise and labor shortages have started to affect business activity.
After two years of persistent deflation, consumer prices rose 2% on average in 2017, mainly because of higher global commodity prices, food inflation, and firmer domestic demand. At 2.1% year-on-year in December 2017, inflation is still below the National Bank of Poland (NBP) medium-term target of 2.5%.
It is estimated that poverty and shared prosperity indicators continued to improve in 2017 in light of surging private consumption supported by a tight labor market and government social programs.
More efficient tax collection helped the Government to realize its ambitious 2017 spending plans while running the tightest budget execution on record. This was possible because tax collections were higher, primarily from indirect taxes (due to robust private consumption and improved tax compliance) but also from one-off non-tax revenues, such as higher NBP profits. In 2016, the general government deficit narrowed to a 1.6% of GDP, a record low, after hitting 2.5% in 2016.
In light of the positive investment results in 2017 and improved growth prospects in the EU, the previous projection of real GDP growth for Poland has been revised upward by 0.2 percentage points, again, driven by both private consumption and investment. Economic growth may reach 4.2% in 2018 and 3.7% in 2019.
Household spending will benefit from growth in the real wage bill of more than 8% in 2018–19, plus higher state spending on pensions and social benefits. Rising real incomes are expected to lead to further declines in poverty. The US$5.50 per day (2011 purchasing power parity) poverty rate is projected to decline to 1.2% in 2018 and further to 1.0% by 2020.
Public spending is likely to be strong, supported by EU funds and the political cycle leading up to the elections. High corporate profitability and EU funds should support private investment. Exports and industrial production are likely to benefit from stronger European demand in 2018–19, but imports may outpace both.
The general government deficit is set to widen again in 2018 to about 2% of GDP, still safely below the 3% EU threshold. Spending is expected to rise due to higher government consumption, local pre-election investment, and the decision to roll back the planned increases in the retirement age. The revenue side will also contribute to the increasing budget gap; non-tax revenues could be lower this year due to less NBP profit, and the change in the retirement age will depress social contributions from the cohort eligible for earlier retirement. Public debt will stabilize around 51% of GDP in 2018–19, but the structural budget deficit will widen.
Last Updated: Apr 27, 2018