After a sharp slowdown in 2023, economic growth is expected to rebound in 2024 supported by strong private, as well as public, consumption, while the trade balance is expected to hold back growth. Investment is set to contribute positively to growth in 2024, less than in 2023, but to accelerate in 2025. Inflation is projected to ease in 2024 and 2025 albeit price pressures are set to remain elevated in the context of rising domestic demand, increasing labour costs, and gradual unfreezing of energy prices. Investments in defence and social spending are delaying fiscal consolidation.
| Indicators | 2023 | 2024 | 2025 |
|---|---|---|---|
| GDP growth (%, yoy) | 0.2 | 2.8 | 3.4 |
| Inflation (%, yoy) | 10.9 | 4.3 | 4.2 |
| Unemployment (%) | 2.8 | 3.0 | 2.9 |
| General government balance (% of GDP) | -5.1 | -5.4 | -4.6 |
| Gross public debt (% of GDP) | 49.6 | 53.7 | 57.7 |
| Current account balance (% of GDP) | 2.0 | 1.2 | 1.0 |
Growth to rebound in 2024 and 2025
The Polish economy slowed rapidly in 2023. Net exports contributed positively to growth as imports fell while exports increased. Investment in equipment and non-residential construction accelerated amid culmination of EU funding from the 2014-20 programming period, while residential investment continued to shrink. Private consumption contracted in the context of persistently elevated inflation, an increase in the saving rate, and weak consumer sentiment. The change in inventories had a large negative contribution to growth.
Real GDP growth is projected to rebound to 2.8% in 2024. Private consumption is expected to be the main growth driver, supported by rapidly rising wages, additional government social support boosting disposable income, improved consumer sentiment, and receding inflationary pressures. The positive contribution of public consumption is set to increase in 2024. Investment is forecast to support growth, but less than in 2023, the final year when EU funding from the 2014-20 programming period could be spent. Net exports are projected to contribute negatively, as rising domestic demand is expected to fuel imports amid subdued exports.
In 2025, real GDP is forecast to increase by 3.4%. Private consumption is set to remain the key driver of growth amid accelerating EU-funded investment while growth of public consumption slows. The negative contribution from net exports is expected to shrink.
Risks to the outlook relate mainly to further delays in the implementation of EU-funded investment and a higher saving rate of households.
Labour market to remain resilient
The economic slowdown in 2023 had a limited impact on the tight labour market. Unemployment was broadly unchanged in 2023 as employers reduced working hours but were mostly reluctant to lay-off workers. The unemployment rate is set to rise marginally in 2024, but remain at a historical low of close to 3% amid negative demographic trends. Employment is projected to stagnate in 2024 and 2025. Wages are expected to continue growing at a fast pace, fuelled by a 20% minimum wage increase in 2024, a large salary increase in the public sector, and a historically-low unemployment rate. Real wages are set to increase significantly in both 2024 and 2025.
Price pressures to ease but to remain elevated
After reaching 10.9% in 2023, headline inflation is forecast to significantly ease to 4.3% in 2024 and 4.2% in 2025. Inflation excluding energy and food is set to remain above 4% in 2024 as disinflation in services proceeds only very gradually amid large wage increases. Compared to the Winter Forecast, the projected inflation has been revised down for 2024 and 2025 and reflects lower inflation in 2024-Q1 and more gradual unfreezing of energy prices in 2024-H2. The Winter Forecast assumed a discontinuation of the measures to mitigate the impact of high energy prices in July 2024.
Defence and social expenditure driving deficit and debt
In 2023, the general government deficit amounted to 5.1% of GDP. The economic slowdown contributed to the deterioration of headline balance through cyclical factors. In addition, the increasing spending on defence (2.7% of GDP), measures to mitigate the impact of high energy prices (0.6% of GDP) and the budgetary cost of hosting persons fleeing Ukraine (0.3% of GDP), combined with the adverse impact of the 2022 personal income tax reform, contributed to the increase in the deficit.
The general government deficit is expected to increase to 5.4% of GDP in 2024. Spending on defence is set to further expand. The net budgetary cost of energy-support measures is projected at 0.5% of GDP, reflecting the extension of most of the support schemes with limited revenues from levies on the windfall profits of energy companies. The government also decided to increase the '500+’ universal allowance for families with children, now called ‘800+’, and to raise salaries of teachers by 30% and of public sector officials by 20%.
Based on unchanged policies, the deficit is forecast to decrease to 4.6% of GDP in 2025, on the back of a cyclical upturn and phase out of energy-support measures. Investment in defence is expected to continue to grow, reflecting the incoming deliveries of earlier purchased military equipment.
The public debt amounted to 49.6% of GDP in 2023. It is projected to increase to 53.7% of GDP in 2024 and reach 57.7% of GDP in 2025. The growth of public debt is driven by the high deficits and stock-flow adjustments related to timing of defence investments.