OECD Economic Outlook, Volume 2024 Issue 1

Poland

Real GDP growth is expected to recover to 2.9% this year with rising real wages and fiscal policy supporting consumption growth, despite weaker investment growth. Headline inflation has been falling, but will rise to 4.8% by the end of 2024 due to a withdrawal of food and energy support measures before declining to 3.5% in 2025. In 2025, real GDP will grow by 3.4% as EU funds lead to a pickup in investment and inward foreign direct investment (FDI) remains strong, although consumption growth will still be tempered by inflation and a further withdrawal of fiscal support. Slower than anticipated fiscal consolidation and higher investment could pose upside risks to inflation, while an escalation of the war in Ukraine could disrupt the economy.

Monetary policy should remain restrictive and, given the risk of persistent inflation and the uncertainty in the outlook, ease only slowly. Gradual fiscal consolidation as part of a medium-term strategy is needed to avoid overheating and improve long-term fiscal sustainability. In the medium term, enhancing lifelong learning programmes could alleviate skills shortages and help support greener growth.

The economy is slowly beginning to recover

The economy began recovering in the second half of 2023. Despite some volatility, private consumption was higher by the end of the year supported by falling inflation, easing financial conditions and robust wage growth. Investment growth remained strong, driven by FDI inflows and EU funds. Consumer confidence has continued increasing and business confidence and retail sales have risen this year. Wage growth continued to grow strongly in February and the unemployment rate is around 3%. Headline inflation fell sharply to 2% in March due to slowing food inflation and lower energy prices, while core inflation declined more slowly to 4.6%.

Poland: Economic growth and inflation indicators

1. Consumer price index excluding food and energy.

2. The inflation target is 2.5% with a symmetric +/-1 percentage point range for deviations in the medium term.

Source: OECD Economic Outlook 115 database; and OECD calculations.

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Poland: Demand, output and prices

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Net trade contributed to growth in 2023. Export volumes grew in the second half of the year, helped by stabilising demand in the euro area. Import volumes rose to a smaller extent due to further reductions in inventories and the continued ban on Ukrainian grain imports. Easing supply chain disruptions and a stronger exchange rate are passing through to producer prices, reducing goods price inflation. Services price inflation remains elevated as the mitigating effects of Ukrainian migration on wage growth have diminished and the labour market remains tight.

Monetary policy remains restrictive amid considerable fiscal support

The National Bank of Poland has kept interest rates unchanged at 5.75% since October 2023 on account of significant underlying inflationary pressure and uncertainty around the outlook. Fiscal policy support remains considerable. Social benefits have been expanded, the reintroduction of VAT on food was delayed until April and energy support measures were extended until the autumn. Public sector salaries and the national minimum wage will increase by around 20% in 2024. Fiscal policy is expected to tighten in the second half of the year, helped by the withdrawal of energy and food support measures, although the deficit will remain significant.

The economy should continue to recover but inflation will slow gradually

The reintroduction of VAT on food and higher regulated energy prices will push headline inflation to 4.8% by the end of 2024 before it falls to 3.5% by the end of 2025. Core inflation is likely to decline gradually given the resilience in labour markets. Private consumption should grow, boosted by higher incomes and gradually decreasing interest rates, but will be tempered by inflation and the desire to rebuild savings. After a slowdown in investment growth in 2024, the disbursement of new EU funds should lead to a strong pick up in investment activity in 2025. GDP is projected to grow by 2.9% in 2024 and 3.4% in 2025, but the outlook remains uncertain. Prolonged fiscal support and faster-than-expected absorption of EU RRP funds could lead to stronger growth and higher inflation in 2025. An escalation of the war in Ukraine could lead to disruption, higher uncertainty and currency depreciation, pushing inflation up and growth down.

Fiscal consolidation is needed to ensure sustainable public finances

Given the uncertainty around the inflation outlook and the risk of persistent inflation, monetary policy should remain restrictive and further easing should be gradual until inflation durably returns to target. Gradual fiscal consolidation is needed to put the public finances on a more sustainable path and to help reduce inflation. The new government should develop a credible medium-term fiscal consolidation strategy and establish an independent fiscal council. To reduce spending, energy support measures should be fully withdrawn by the end of 2025 while social benefits should become more targeted. Reducing skills shortages through better adult training could boost growth and facilitate the green transition. Enhancing lifelong learning programmes, particularly through flexible and modular training, could improve managerial skills and digital skills among older adults, the unemployed and low-skilled.