Economic slowdown, high inflation and interest rates. OECD forecast for Poland

"Real GDP growth is projected to slow to 0.9% next year before picking up to 2.4% over 2024. High uncertainty and lower consumer and business confidence will hold back domestic demand over 2023. Weaker growth in Poland’s major trading partners is projected to moderate export growth" - the OECD said in November's "Economic Outlook" report.

"Inflation will fall as retail energy price growth slows and tighter monetary policy takes effect, but will remain at 6.6% in 2024, above the central bank’s target range. Rising spare capacity will exert downward pressure on inflation while the economy recovers, partly driven by EU funds," we read.

The authors of the report added "there is considerable uncertainty and risks to the outlook remain tilted to the downside".

"Further escalation of the war would increase uncertainty, exacerbate inflation and strain public finances. Additional disruptions to energy supply could hit output and trade. Continued disagreements on strengthening the judiciary could further delay the disbursement of EU Recovery and Resilience Facility funds" - the OECD said.

"On the upside, expansionary fiscal policy may prolong high inflation and require additional monetary tightening. A quick resolution of the war would boost growth and reduce inflation" - they added.

"National defence spending is set to increase from 2.2% of GDP in 2022 to 3% by 2023 while healthcare spending is set to grow by 0.25% of GDP, adding to demand pressures. The government is also raising public sector salaries by 7.8% and increasing spending on social welfare programmes. Given persistently rising inflation, the key policy interest rate has been raised from 1.25% in November 2021 to 6.75% in September 2022 and has remained unchanged since then," we read in the report.

According to OECD experts, Poland's general government decifit is to be at 4.9% in 2023, and at 4.0% in 2024.

"Fiscal policy will expand further to support households and firms against the impact of the war in 2023, before tightening in 2024. Existing support measures such as the Anti-Inflation Shield, which includes reductions in VAT and excise duties on energy and food, have been extended to the end of the year and support is assumed to continue in 2023. Heating subsidies have been introduced and electricity prices will remain capped," the report added.

The OECD forecasts that interest rates in Poland will continue to rise until mid-2023 and reach 8%.

"Fiscal policy should continue to shield the most vulnerable households from inflation but should be better targeted, designed to incentivise energy savings, and should avoid adding inflationary pressure in the economy. Further diversifying energy imports and increasing investment in renewables would improve energy security and ensure greener growth," the experts said.

Furthermore, the OECD said that in order "to facilitate the digital and green transitions and address skills shortages, labour market policies should upgrade weak basic skills and improve access to lifelong training for older adults, the unemployed and the low-skilled".

"Integration of refugees in the labour market should continue to be supported through childcare provision and language training."

The Organisation for Economic Co-operation and Development (OECD) is an international organisation that works to build better policies for better lives. Our goal is to shape policies that foster prosperity, equality, opportunity and well-being for all. We draw on 60 years of experience and insights to better prepare the world of tomorrow.