Poland’s economic growth accelerates in 2017

Poland’s economic growth is expected to accelerate to 3.3 percent in 2017, compared to 2.8 percent in 2016, supported by stronger investment and consumption, according to forecasts published by the World Bank on Thursday. Growth is also expected to remain broadly stable at 3.2 percent in both 2018 and 2019.

These forecasts update earlier figures released by the World Bank in January, which called for growth of 3.1 percent in 2017, and 3.3 percent and 3.4 percent in 2018-2019, respectively.

“Following a slowdown in 2016, Poland’s economy is picking up again because of new investments funded by the European Union (EU), while private consumption is rising due to strong labor market performance and the expenditure effect of the Family 500+ benefit program,” said Carlos Piñerúa, World Bank Country manager for Poland and the Baltic States. “However, the future of the global economy is still very much uncertain, which will have an impact on Poland’s growth and its fiscal situation. Therefore, Poland needs to effectively implement the reforms laid out in the government’s Strategy for Responsible Development, placing particular emphasis on reforms to improve the business environment and promote innovation.”

The World Bank projects that Poland’s deficit will widen slightly to 2.6 percent of GDP in 2017, from an estimated 2.5 percent in 2016. In 2017, budgetary spending is projected to increase as the Family 500+ program will be in effect for the whole year for the first time and the roll-back in the retirement age will impact budgetary spending from October 2017. According to the forecast, the deficit may reach the EU threshold of 3.0 percent of GDP in 2018, if not further policy actions are taken.

Budget revenues are nevertheless expected to grow as a result of the country’s improving economic performance, the introduction of different measures by the Ministry of Finance, and the establishment of the National Fiscal Administration (KAS), which is expected to improve tax compliance and bridge the existing large gap in the VAT system.

Risks and Challenges

Despite a relatively benign economic forecast, risks remain skewed to the downside due to uncertainty in the global economy, including in advanced economies. In our baseline scenario, assuming moderate improvements in VAT compliance, the headline fiscal deficit is set to reach 2.6 percent of GDP in 2017 and reach the 3 percent of GDP threshold in 2018 and 2019. This scenario is subject to substantial uncertainty associated with macroeconomic trends (both growth and inflation), efficiency of the new fiscal administration, and effects of government’s endeavors to increase effectiveness of public spending through the budget system reform. To guard against these risks, a swift implementation of market-friendly structural measures from the Strategy for Responsible Development are required to promote investment and innovation and counterbalance emerging labor shortages. The latter are likely to be exacerbated by deactivation incentives to work stemming from more generous social benefits for younger workers and lower retirement ages for older cohorts.

Press release by World Bank. 

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