The Polish economy proved relatively resilient in the first quarter of 2020, mainly thanks to a diversified economic structure and low exposure to the sectors most affected by the pandemic. GDP decreased by 0,4% from the previous quarter, driven by a significant decline in private consumption, while investment decreased only moderately, as construction continued to expand and industrial production registered only a slight contraction. From the data of European Commission, GDP is expected to collapse in the second quarter and then gradually recover, leaving GDP growth around -4,5% this year and 4,3% in 2021, higher than the Eurozone average (-8%). Despite the measures put in place by the government, private consumption is expected to suffer from the pandemic, as consumers accumulate precautionary savings and hold back on spending in an environment of social distancing and high uncertainty. Second atradius, despite the expected reduction (-4,8%, against a Eurozone average of -9,6%), the increase in government payments to households and retirees, together with tax breaks, continue to support private consumption, which represents 58% of GDP, thus reducing vulnerability to external shocks (as already demonstrated by avoiding the recession in the 2009 credit crisis). Coupled with supply chain disruptions and lower order books in March and April, weak business confidence will likely impact investment, which is expected to slump in the second quarter to only partially recover. Furthermore, in 2020 the demand of the main Polish trading partners will most likely have a negative impact on exports, especially in the transport and tourism sectors. However, even here the expected decline (-4,3%) is much smaller than the average export in the Eurozone (-11,1%), since the economic performance is less dependent on exports than in partners such as the Czech Republic, Hungary or Slovakia.
HICP inflation accelerated significantly in late 2019 and early this year, driven by sustained increases in food and services prices. However, slowing wage growth and weak demand caused by the pandemic are expected to end a nearly two-year trend of uninterrupted increases in inflation, which is expected to decrease in the second half of this year and into early 2021. As a result, HICP inflation is expected to average 2,7% this year and reach 2,8% in 2021 as the economy picks up. 'economic activity.
The budget is under control despite the social measures: The deficit has remained relatively low since 2017, with analysts estimating last year at 1,0% of GDP. Indeed, transfers to households will be offset by higher contributions and direct taxes thanks to a favorable labor market and solid growth. An increase in excise duties is planned for this year, while the budget will also benefit from the sale of telecom frequencies and CO emission certificates2. Public debt also remains sustainable, albeit on the rise, estimated at 56% of GDP (47% in 2019), subject to some currency risk and vulnerable to international investor sentiment. The current account balance was slightly negative in 2018 and it is estimated that this area will remain in the two-year period 2019-20. Trade in services continues to post a surplus, supported by overseas transportation services, and trade in goods continues to grow despite the global slowdown. The balances of primary and secondary income remain negative: the negative balance of primary income is mainly due to investment income, the secondary one from the negative balance of the banking sector. Fiscal stimulus measures to support the economy, including credit guarantees, account for 13% of GDP, equal to 70 billion euros. Poland will largely benefit from the fund Next Generation US, created to help countries recover from recession, and additional EU grants. Monetary policy has so far been accommodative, With the Central Bank which has lowered the benchmark interest rate three times since March 2016, reaching an all-time low of 0,1% last July. The budget deficit is then expected to increase by 8,5% in 2020 (from 0,8% in 2019).
Coface emphasizes some sectors seriously affected by the economic crisis. In the construction sector, operating margins are very tight, with an increase in credit risk mainly for smaller operators. As a result of the recession, businesses are increasingly interested in postponing projects and reducing order volumes, resulting in an increase in payment delays and defaults. Due to deteriorating demand from buyers, machinery, metal and steel industries are suffering; in turn the consumer durables industry, textile wholesalers and retailers have been negatively impacted by temporary lockdowns, lower consumer confidence and rising unemployment. The financial strength of many companies has thus seriously deteriorated and insolvencies are expected to increase in these sectors.
Despite the economic resilience, medium-term growth prospects are limited: Due to the further tightening of the labor market, the shortage of workers is increasingly becoming a problem, reducing production capacity especially in the manufacturing sector. Labor shortages could weigh heavily on potential growth, compounded by the early retirement of a large share of the workforce due to lower retirement ages. Here then is that in the region the Polish economy appears more vulnerable to the financial and economic fallout in the event of the failure of the negotiations between the EU and the United Kingdom. Annual remittances from Poles living abroad amounted to around €7 billion in 2019, much of it from the UK. In the longer term, London's exit from the EU could have an impact on the European structural funds, which play an essential role in Warsaw's economic progress.
