Poland’s economy grew by 0.2% in 2023, preliminary figures from Statistics Poland (GUS), a government agency, showed. The figure was lower than expected by economists and represents a sharp slowdown from growth of 5.3% in 2022.
Excluding the pandemic-induced drop in GDP in 2020, growth last year was the slowest since the early 1990s, when Poland was dealing with the shock of the transition to a free-market economy.
Economists note that an inflation-induced decline in household spending was largely responsible for the slowdown in the Polish economy. They expect, however, consumption to pick up this year following rises in the minimum wage and child benefit.
“We finish 2023 with a disappointment: the Polish economy grew by only 0.2% and the GUS data released today suggested a weak end to the year,” wrote analysts from Pekao, Poland’s second-largest bank.
The consensus among economists had been that Poland’s GDP would grow by 0.5% in 2023.
“Houshold consumption was 1% lower than in 2022, mainly due to high inflation,” said Jakub Rybacki of the Polish Economic Institute (PIE). “In the first half of the year, inflation was rising faster than wages, contributing to the erosion of household wealth.”
Although wages started to grow faster than inflation again during the summer, consumption in Poland remained stagnant in the fourth quarter.
Despite the drop in consumption, Poland’s GDP growth was supported last year by a strong investment growth (+8%) “mainly due to spending by large companies,” noted Rybacki. Intel and Volkswagen were among the large international firms to announce major investments in Poland last year.
Rybacki says PIE expects GDP growth to rise to 2.3% this year thanks to a rebound in consumption.
“The main threat to the economy at the moment is the slowdown in the euro area. Current forecasts indicate that Germany, Italy and France will grow at a weak pace. As a result, a decline in foreign demand and slower export growth in Poland is likely,” he added.
According to analysts at mBank, the weak GDP data may portend a further slowdown of inflation in Poland. In December 2023, annual inflation fell to 6.2%, well below its peak of 18.4% in February 2023. It remains, however, above the Polish central bank’s inflation target of 2.5% (+/- 1%).
However, they note that business inflation expectations remain high, with nearly two-thirds of companies in Poland planning wage increases, which in turn might reignite inflationary pressures.
This leaves the central bank’s Monetary Policy Council (RPP), which sets interest rates, with “a real tough nut to crack”, wrote mBank’s analysts. “We believe that such a set of data will favour bets on interest rate cuts.” (Notes from Poland/Business World Magazine)