The World Bank In Poland

COUNTRY CONTEXT

Poland’s well-diversified economy has proven to be one of the most resilient economies in the EU, recovering strongly in 2021 after a relatively small contraction in GDP of 2.2 percent in 2020. A sound macroeconomic framework, effective absorption of EU investment funds, a sound financial sector, better access to long-term credit, and access to European labor markets have supported long-term inclusive growth and poverty reduction.

Strong domestic labor markets and increases in median and bottom 40 real incomes have supported private consumption. The unprecedented policy response to mitigate the impacts of the COVID-19 crisis and high inflation have narrowed the available policy space. Increased spending and tax expenditure efficiency is needed to rebuild fiscal buffers, accommodate higher spending on health, defense, the green transition, and to prepare for the growing fiscal burden arising from aging.

Over the medium term, a key challenge is tightening labor supply, made more acute by the aging population. The large influx of displaced people from Ukraine could help address tightness in the labor market. Achieving decarbonization commitments is another challenge. Institutional strengthening is needed for sustained and inclusive growth. 

Last Updated: Oct 12, 2022

Strategy

The World Bank Group’s financing to Poland remains highly selective and in support of delivering global and/or regional public goods. Poland has made strides in strengthening its overall economic governance systems over the last three decades with key economic institutions, for instance, being able to put together a robust package of fiscal and monetary actions in 2020 that limited the GDP contraction caused by the COVID-19 pandemic.

Today, the spillover effects from the war in Ukraine require agile economic planning and management to mitigate the impacts from the crisis on growth and public finances, while supporting the vulnerable, including Ukrainian refugees.

Economic and social institutions to manage key transitions—demographic, green, and digital—need to be developed further on the national and subnational level to achieve a sustainable graduation from IBRD. In order to boost growth and reverse trends that are slowing down productivity and to further reduce inequality of opportunity in the future, Poland will need to navigate three imminent transitions that require it to simultaneously shift towards a green economy, adopt digital technologies, and adjust to the needs of an aging population.

These shifts will require strong political ownership, institutional coordination, and administrative capacity to direct the enabling reforms at the national and subnational level, including through establishing appropriate financing structures to support the needed investments. Local institutions also have to deal with increased pressure from the war in Ukraine. The 12 largest metropolitan areas were estimated to have experienced a huge influx of Ukrainians in the months after the Russian invasion of Ukraine, stretching the capacity of local housing services, and placing significant pressure on public services like health, education, water/wastewater and transport. 

The World Bank will continue to work together with the government, the EU, UN agencies and other partners on the implementation of flagship initiatives where progress can advance the development agenda on global public goods, such as economic integration of forcibly displaced populations, decarbonization, just transition (out of coal), comprehensive water management, clean air and sustainable cities.

Last Updated: Oct 12, 2022

Recent Economic Developments

Economic growth remained strong in the first half of 2022, well above potential GDP growth, expanding nearly 7 percent year-on-year. This follows a 5.9 percent GDP recovery in 2021 from the COVID-related 2020 recession. Household consumption expanded by 6.4 percent year-on-on-year in the first half of 2022, investment rose 6.2 percent, and there was a significant contribution to growth from rebuilding of inventories. 

Private consumption benefitted from the tight labor market with continued employment growth, record low unemployment, increased labor force participation and strong wage growth. It was also supported by pent-up demand and demand from the nearly 1.4 million displaced Ukrainians in Poland. Robust domestic demand growth fueled import growth while supply side disruptions and lower external demand from Russia, Ukraine, and Belarus weighed on export growth, jointly contributing to a negative contribution from net exports. 

Inflation has continued to accelerate markedly since mid-2021, reaching more than 16 percent in August, sharply higher than the targeted range. Hikes in energy and agricultural commodities, as well as continued disruptions in supply chains, fueled inflation. High inflation triggered a faster than expected monetary policy tightening. 

Economic Outlook

Economic growth is expected to decelerate to 4 percent in 2022 and to 1.6 percent in 2023, due to high inflation, monetary policy tightening, negative confidence effects related to the war in Ukraine, and slowing demand in key trading partners. Supply-side disruptions, high input costs, and uncertainty related to the war in Ukraine will affect private investments. 

The National Recovery and Resilience Plan is expected to support public investment, but any delays in disbursements represent a downside risk. Higher energy and food prices will weigh on household demand and will affect heavily poorer segments, who devote 50 percent of their monthly spending on food and energy. 

Minimum wage growth is expected to be outstripped by inflationary pressures, leading to a decline in the real minimum wage in 2022, which will be moderated by the phased adjustment of the minimum wage in 2023. While measures under the Anti-inflation Shield, 14th month pension, and energy subsidies will soften household impacts, the share of the population at risk of relative poverty is expected to remain elevated at 1-2 percentage points above 2021 levels. 

Last Updated: Oct 12, 2022