In the space of twenty years, Poland's per capita GDP rose from 40% of the EU average in 1997 to around 70% in 2016:
the real economic growth of the country in the medium/long term (3,9% per year on average from 1997 to 2016) was supported by productivity growth (with an average annual contribution of 2,0pp)
and the accumulation of the capital and labor factors. As reported by the
Intesa Sanpaolo Studies and Research Department,
international openness (exports to GDP rose from 21% in 1995 to over 50% in 2016)
, foreign investment (the sum of foreign assets and liabilities to GDP increased from 400% to 660% from 2004 to 2016)
and increased efficiency in the labor market are the main structural factors underlying the Polish economic dynamics and represent the engines of the country's economic growth. After the decline that began in 2008, the inflow of foreign direct investments began to grow again from 2014 to the current 3,0% of GDP, contributing, together with European funds (67,2 billion euros from 2007 to 2013 and for the period 2014-20 a further 86 billion has been allocated, 30% of which is intended for projects for infrastructure networks) for the expansion of the country's productive capital and technology transfer. And as regards the labor factor, the employment dynamic was favored by the greater efficiency of the labor market which over time has improved the possibility of matching supply and demand for labour.
GDP grew by 2,7% in 2016 supported on the demand side by public consumption (with a contribution of 0,5pp)
and especially the private ones (2,2pp), the latter favored by employment growth. The contribution to GDP growth deriving from net exports was also very limited, albeit positive (0,2pp). On the supply side, the greatest contribution to GDP growth in 2016 came from the services sector, which grew by 3,9%, while those provided by industry and agriculture were very modest.
During the first quarter of 2017, GDP grew by 4,0%, with a strong acceleration (from +2,5% at the end of 2016); in the same period final consumption expenditure accelerated to 3,9% from 3,1% and the good growth of exports (8,3%) was substantially in line with that of imports (8,7%), while the dynamics of investments, strongly correlated with EU funds, was close to zero. On the supply side,
the added value created by industry grew by 7,2%, mainly supported by manufacturing (8,6%); the construction sector returned to positive territory (4,6%) and the services sector confirmed its trend with growth in added value spread across its various components, from 13% recorded for transport to 0,2% for the sector of training.
Retail sales in April and May grew by more than 8,0% in nominal terms and the unemployment rate also fell in May (7,5%) to its lowest level in recent years. in May theEconomic Sentiment Indicator remained close to the maximum recorded in the last five years, confirming favorable economic prospects also for the second quarter. For the whole of 2017, analysts forecast GDP growth of 3,6%, with the economic dynamics in the second half of the year slightly correcting compared to the first quarter. All the components, including investments, whose dynamics could return to positive territory with the intensification of the absorption of EU structural funds, will support GDP growth. The positive cyclical phase of Poland's main trading partners will make a positive contribution through exports, but it is believed that this contribution will be substantially offset by the growth in imports. For next year it is expected that the positive cyclical phase will continue, albeit at a slightly more contained pace (3,3% GDP growth forecast in 2018) with the contribution of net exports in negative territory due to the dynamics of imports fueled by the growth in household consumption.
In the first five months of this year, inflation settled at an average of 1,7%, recovering from -0,7% in 2016. For the remainder of 2017, the growing trend in consumer prices is expected to continue, due to inflationary pressures generated by demand, bringing annual inflation to 2,0% about. It is expected that
the inflation profile will remain around 2,0% in 2018 under the assumption of oil prices still low and only slowly rising.
The fiscal consolidation achieved by the country in recent years has allowed a reduction in the public deficit from 4,0% in 2013 to 2,4% in 2016: the improvement in the deficit in 2016 was the result of the higher growth in tax revenues compared to spending, which was also weighed down by the purchase of Pekao Bank, an operation that allowed the country to acquire control of Poland's two largest banks (Pekao and PZU). Last year, the ratio of budget revenues to GDP was 38,0%, or 0,4pp more than in 2015, while public spending rose to 40,4% of GDP, or 0,2% in more than the previous year. According to the estimates presented in April by the Government in the document
“Convergence Program”,
this year the public deficit will be 2,9%, following the strengthening of public investment spending and the fiscal policy in support of families (Family 500 Plus Program) to encourage population growth. For next year, the document continues, the Government has planned a deficit of 2,5%, then decreasing in subsequent years to 1,2% in 2020.
Public debt, equal to 54,4% in 2016, is expected to increase to 55,3% this year due to the budget deficit, and then slightly decrease in 2018 (54,8%). In order for the public debt to stabilize close to 45%, i.e. below the threshold (55%) that the Polish Constitution indicates as the threshold value beyond which the Executive must limit its spending freedom in order to stabilize the public accounts, the public deficit should not exceed 1,2% in the medium/long term.
An inflation-targeting monetary policy regime is in place in the country with an inflation target of 2,5%: from April 2015 the
National Bank of Poland (NBP) it left the reference rate at 1,5% (the lowest level ever). According to the monetary authorities, inflation will remain on a weak path in 2017-18 but on an upward trend, driven by the recovery of the economy, considering that an increase in policy rates is not likely in the short term. In this scenario,
monetary policy will remain expansive in the coming months with the policy rate at a minimum and with a possible gradual rise in the reference rate only towards the end of next year. At the same time, Poland has a free-floating exchange rate regime: currently, the zloty is at 4,2 against the euro, a value around which it has fluctuated in the last six months. The exchange rate is slightly appreciated compared to the equilibrium value (4,37), where analysts believe that
the local currency will continue to be subject to fluctuations in the short term, however depreciating slightly in the longer term towards the equilibrium value. The current account deficit fell to 0,3% of GDP in 2016 with the trade balance which, although reduced, remained in positive territory and that of services which instead increased. Despite the current account deficit, the balance of payments was positive thanks to the surplus of the capital and financial accounts: for this year it is estimated that the current deficit, while remaining rather contained, could widen to 0,8% due to the demand for imports deriving from the strengthening of household consumption. A dynamic that could bring the deficit to 1,2% in 2018.
External debt rose to 74,7% of GDP in 2016 (from 69,5% in 2015), however it is expected to improve this year and next (71,4% and 68,5%, respectively) thanks to low current account deficits. In this scenario, external debt could correct significantly below 65% of GDP if the current account deficit remains below 1,5% longer term. Over a short-term horizon, the reserve cover ratio, i.e. the ratio between foreign currency reserves and the aggregate equal to the sum of maturing debt and the current account deficit (which supplies the country's short-term foreign financial needs ) is estimated to exceed the threshold value of 1 (2,7 in 2017) and is expected to remain above the criticality threshold also in 2018. Based on the
Global Competitiveness Index (GPI), index calculated from
Word Economic Forum, from 2012 to 2015 Poland improved its score from 4,1 to 4,5 on a scale ranging from 1 (least competitive) to 7 (most competitive). According to the GPI,
the complex tax regulation and the inefficient bureaucratic system weigh negatively on the economy and have ample room for improvement, while the quality of the education system represents one of the country's strengths.
However, foreign debt (estimated at over 70% in 2016) represents an element of the country's financial fragility, although the current account deficit is expected to be quite small, albeit slightly increasing next year. In January of this year the IMF has granted the extension of the Flexible Credit Line (FCL) program and in the "Staff Statement" of last May it underlined the positive cyclical phase that the country is going through, without neglecting to recall the need to strengthen the fundamentals of the economy by intensifying investments and improving the public finances with the reduction of the budget deficit, which is very close to 3,0% although lower than the Maastricht criterion. In May, the Moody's agency confirmed the country's rating at A2, and at the beginning of the year, the Fitch agency also confirmed its rating (A-). S&P's opinion is slightly more cautious, assigning Poland a BBB+ rating with a stable outlook.
