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COUNTRY CONTEXT

^{*Data for 2022}

The Polish economy has weathered global and regional external shocks thanks to a well-diversified economic structure, integration into regional value chains, a commitment to macroeconomic stability, a robust financial sector, and tight labor markets that have led to notable wage increases and consumer spending. However, the shocks have weakened the fiscal stance, while the global energy crisis led to a sharp increase in inflation which reduced purchasing power, weighed down on growth, and increased poverty in 2023.

Poland's economic strategy is at a critical turning point: it requires boosting productivity through innovation, rapidly decarbonizing the energy sector to retain economic competitiveness and re- and upskilling the labor force in the backdrop of a rapidly ageing population. Restoring fiscal buffers while supporting investments in healthcare, defense, and renewable energy will require balancing efficient spending and tax policy reforms. Promoting the efficiency of spending on social benefits and promoting adaptive social protection remains a priority for advancing inclusion.

Medium-term economic prospects hinge on reaping the benefits of technological and green transitions, advancing social mobility and inclusion, and addressing labor shortages. Meeting the technological transformation and EU decarbonization objectives requires investment and planning, including ensuring a just transition that supports vulnerable groups while containing regional disparities.

Last Updated: Oct 23, 2024

Strategy

Å·ÃÀÈÕb´óƬ 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.

However, economic and social institutions to manage key transitions¡ªdemographic, green, and digital¡ªneed to be developed further on the national and subnational level to achieve sustainable graduation from IBRD. To boost growth and reverse trends that are slowing down productivity as well as  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 must 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 outbreak of the war in Ukraine, stretching the capacity of local housing services, and placing significant pressure on public services like health, education, water/wastewater, and transport.

Å·ÃÀÈÕb´óƬ 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 23, 2024

Recent Economic Developments

After a sharp deceleration in 2023, real GDP growth has accelerated in 2024. Growth surprised on the upside in Q2 (3.2% year-on-year (YoY)) thanks to government and private consumption picking up. A tight labor market, staggered increase in the minimum and public wages have resulted in one of the largest increases in average real monthly wage (11.5% YoY in Q2).

Inflation markedly slowed down reaching 2% YoY in March 2024¡ªdown from its peak of 18.4% YoY in February 2023, due to falling global commodity prices, a stronger zloty, and fewer supply disruptions. The zloty remains strong, thanks to improved risk perceptions and an increasing interest rate disparity vis-¨¤-vis the euro. Inflationary pressures are expected to pick up in H2 2024, however, primarily due to the phasing out of energy price caps. This has prevented the National Bank of Poland from continuing its monetary easing cycle, which started in September 2023 (75 bps cut). Headline inflation rose again in August 2024 (4.3% YoY). Continuous strengthening is required to finance growing investment needs, in the context of an accelerated green transition. The fiscal deficit widened in 2023, reaching 5.1% of GDP, on the back of high debt service costs (2.1% of GDP), increased defense spending (around 4% of GDP), untargeted measures to protect households from the energy and food price shocks, and the time-lagged impact of the significant personal income tax reform in 2022.

Economic Outlook

Economic growth is set to accelerate to 3.2% in 2024 and 3.7% in 2025. While private consumption will continue to be a major driver, investment stimulated by structural reforms and unlocked EU funds is also expected to play a significant role, especially in 2025-2026. Net exports¡¯ contribution to growth should turn negative in 2024 as domestic demand fuels imports while EU exports remain weak. A 

gradual improvement in exports is expected from 2025 onwards. Inflation should stabilize at around 3.5-5% and move closer to the NBP target of 2.5% (+/-1% band) only in the medium term. The combination of revenue shortfalls (from the tax reforms and exemptions) alongside increased defense and election-related spending, is set to keep the general government deficit at 5% of GDP in 2024-2025. Entry into the EU's excessive deficit procedure (EDP) should gradually trigger a fiscal consolidation, but the pace is expected to be slow due to the high levels of defense spending in light of geopolitical tensions. Public debt is sustainable but will rise relatively fast in the forecast period, with the 2025 borrowing needs of the general government sector expected to reach record highs.

Last Updated: Oct 23, 2024