In its October note, the World Bank raised its expectations for the growth of Polish GDP in 2021 to 4.5%, and in 2022 – to 4.7%. This means that the forecasts are higher than the June publication by 0.7 percentage points, respectively and 0.2 percentage points
According to the institution’s economists, the dynamics of private consumption in 2021 will amount to 5.5%, and in 2022 to 4.7%. Gross fixed capital formation will increase by 4.2% this year and 7.3% next year.
“We expect economic growth to remain above potential in 2022, with production rising by more than 4.5% and a widening of the output gap,” wrote the document “Europe and Central Asia Economic Update” published this Wednesday morning.
“Equalizing demand in the euro area, where production is expected to increase by 4.8% in 2022, will slow down export growth, while improving confidence and the implementation of investments, including those under the National Reconstruction Plan, will support growth,” he added.
World Bank economists also expect domestic demand to be supported by the “Polish Deal”.
The program assumes, inter alia, a new PIT relief, which will strengthen the progressiveness of PIT, an increase in health care spending to 6 percent of GDP by 2023, as well as a large program of infrastructure and local public investments, according to the report. The authors report that October’s forecasts take into account the uncertainty arising from new COVID-19 variants.
The crisis has placed a financial burden on poor working households, who are more prone to reduced working hours and job losses. The at-risk-of-poverty rate is expected to remain high by 2022, it further announced.
“We expect strong import demand, higher import prices and a higher primary income outflow to reduce the current account surplus to less than 2% of GDP in 2021,” he dded.
The World Bank also pointed out that in order to finance the National Reconstruction Plan, Poland applied for EUR 23.9 billion in subsidies and EUR 12.1 billion in preferential loans under the so-called The Reconstruction Fund, ie the “Next Generation EU” program, which, however, has not yet been approved.
The institution expects the budget deficit to decrease by almost 2 percentage points in 2021, due to a lower general government deficit.
“A gradual consolidation is expected in the period 2022-2023 as economic growth accelerates and fiscal stimulus is withdrawn,” he added.
The World Bank also forecasts that in 2023 the Polish economy will grow by 3.4%, which in turn is a result of 0.5 percentage point. lower than expected in the June publication. In 2023, WB economists forecast an increase in private consumption by 3.3%, and gross fixed capital formation by 7.4%.
BASE INFLATION AND PPI STILL PRESSURE ON PRICES IN THE ECONOMY
In a general summary of the situation in Poland, the World Bank estimates that the Polish economy has quickly recovered from the COVID-19 recession, and by Q2 2021 the production level has returned to the pre-crisis level.
“A well-diversified economy and a large economic and fiscal package facilitated a strong rebound and softened the impact on the household sector. Along with the expected productivity to exceed potential GDP in 2021, a gradual withdrawal of the fiscal and monetary policy stimulus would help balance growth and rebuild the fiscal space. Fourth the COVID-19 wave is coming and the short-term challenge is to maintain a strong economic recovery,” according to the bank.
The World Bank recalled in the document that in 2020 Poland’s GDP fell by 2.7%, which was the first negative annual growth since 1991.
Moreover, economists point out that stronger export demand from the EU was conducive to recovery in the industrial sector and exports, and a strong rebound in imports translated into a negative contribution to the growth of net exports.
For inflation in 20 years or less, the document estimated that it was fueled by soaring fuel prices, supply chain bottlenecks, subdued demand, and stimulus programs.
“Higher core inflation, strong domestic demand and higher producer prices will put pressure on prices,” he added.
According to World Bank analysts, the impact of the pandemic on household incomes and employment has been mitigated by a number of demographically targeted support measures and transfers.
“These measures included wage subsidies and support for domestic businesses in the form of non-repayable transfers, loans, tax credits and deferrals,” it said.
The report also noted that the unemployment rate had been reduced to 5.8% by July 2021, when the economy began to recover, and preliminary assessments show that declines in household income and downtime were more frequent and more pronounced in wave 1 pandemic, and with successive waves they weakened.
Source: World Bank and ISBnews
