Recent Economic Developments

Economic growth has decelerated markedly in the first half of 2023, from a robust 5.1% growth recorded in 2022, with a particular drag coming from household consumption which contracted in response to high inflation, tighter financing conditions, the unwinding of household support measures and weak consumer sentiment. This is despite a robust labor market, with low unemployment rates, higher employment and double digit increases in average and minimum wages. Strong financial performance of firms has bolstered investment activity. Export growth remained robust, while weak domestic demand reduced import demand. 

Inflation decelerated markedly from 18.4% in February 2023, to single digits as of September, as global commodity prices, including energy prices, declined, the zloty appreciated, and supply disruptions eased. The zero VAT rate on staple food products and statutory price caps on fuels sold by local governments maintain lower prices. 

The National Bank of Poland started its monetary easing cycle with a surprise 75 basis points cut in September, even as inflation remains well above the targeted range. Markets price in additional rate cuts as inflation pressures ease. The zloty appreciated by 10% in 2023, before easing in response to the rate cuts.  

Extreme poverty rates using the national concept continue to remain elevated in 2022 compared to the pre-COVID-19 pandemic period. The Gini coefficient of inequality continued the upward trajectory visible since 2017.

Economic Outlook

Economic growth is projected to decelerate markedly to 0.7% in 2023 due to high inflation, negative real income growth, tighter financing conditions, continued negative confidence effects related to the Russian invasion of Ukraine, and an unwinding of the large inventory cycle. A recovery in private consumption and stronger investment activity are expected to support growth over the medium term, although further delays in EU NRRP disbursements represent a downside risk. Slowing demand from the EU will be partially compensated by stronger exports to Ukraine. This, together with weaker import demand and lower energy import prices, is expected to result in a current account surplus of 1.3% of GDP in 2023. 

The general government deficit is expected to exceed 4.7%  of GDP in 2023 and remain elevated in 2024. A prolonged inflationary period poses a risk to progress on poverty reduction, with elevated energy and food prices affecting heavily poorer segments, who spend 50% of their monthly budgets on food and energy. The share of the population at risk of anchored poverty is expected to remain 1-2% above 2019 levels.

Last Updated: Oct 10, 2023