National Outlook: Poland

Poland's economy began to recover in the latter half of 2023. Despite some volatility, private consumption increased by year-end, buoyed by declining inflation, relaxed financial conditions, and strong wage growth. Investment growth remained robust, fuelled by FDI inflows and EU funds. Consumer confidence continued to improve, and both business confidence and retail sales increased this year. Real GDP growth is projected to rebound to 2.8% in 2024, supported by rising real wages and fiscal policy, despite a slowdown in investment growth.

Net trade positively impacted growth in 2023. Export volumes increased in the latter half of the year, driven by stabilizing demand in the euro area. Import volumes rose less significantly due to ongoing inventory reductions and the continued ban on Ukrainian grain imports. Easing supply chain disruptions and a stronger exchange rate are influencing producer prices, leading to reduced inflation in goods prices. However, services price inflation remains high as the mitigating effects of Ukrainian migration on wage growth have lessened and the labor market remains tight.

The labor market in Poland is characterized by record-low unemployment rates, reflecting strong economic confidence. The risk of skills shortages has diminished due to the return of some of Poland's diaspora and the temporary settlement of Ukrainian refugees. Additionally, the recent trend of net positive international migration further strengthens the labor market. The unemployment rate is expected to be around 4.0% in 2024.

Headline inflation has slowed to within the NBP's 2.5% (±1 percentage point) target range in Q1 2024, but it is expected to rebound in the coming quarters. The government ended the temporary zero VAT rate on food on April 1st and is likely to unfreeze some energy prices by mid-2024. An accommodative fiscal policy will also contribute to demand-driven inflationary pressures. Consequently, annual inflation will slow from an average of 11.4% in 2023 to 2.8% in 2024 but will remain elevated at 3% in 2025.

Relations between the EU and Poland have significantly improved after being severely strained under previous PiS-led governments due to reforms that the EU considered detrimental to the rule of law. This conflict resulted in the freezing of up to €137bn (US$150bn) in EU funds and loans. However, the new Polish government has succeeded in unlocking these grants through planned reforms and is advancing ambitious and comprehensive changes. On April 15th, the first tranche of the frozen funds, totalling €6.3bn, was released. Within the EU's 2021-27 budget framework, Poland is set to receive up to €76bn in cohesion funds and €60bn in Recovery and Resilience Facility loans and grants, with an anticipated €23bn in EU funds likely to be disbursed to Poland in 2024.