The Gross Domestic Product in the current year is expected to accelerate significantly, primarily due to consumption and investment. However, export prospects look less promising in light of the weak industrial condition in Europe, especially in Germany. Inflation will not return to the double-digit levels of 2023, although the manner of relinquishing inflation shields, expected to happen in the coming months, remains uncertain. The Confederation of Leviathan in their forecasts does not predict any interest rate cuts for the next 12 months.
According to the forecasts of the Confederation of Leviathan published at the end of 2023, the economy of Poland will speed up in 2024 with the GDP increasing by 2.4-2.8% after a meagre growth of 0.3% in the last year. The major driving force will be the recovering consumption, the signs of which are already evident in the data. Thanks to the unlocking of funds from the Operational Programme, investments will also increase, estimatedly by 4.5%. The third component of the GDP, that is net export, appears to be less promising.
“Economic prospects for Poland are not bad. We still expect consumer activity to increase after the slowdown of 2023. Investments, which saved our economic growth at the end of the year, could be the trigger for our economy,” Mariusz Zielonka, an economic expert from the Confederation of Leviathan, told the Newseria Biznes news agency, “The Operational Programme and the already earmarked funds play a big role. We are still likely to have problems with trade, which will pull us down. Our economic growth should be no less than 2.4% annually. This is a good result, considering what will probably happen in Western Europe.”
We must expect a trade deficit due to the problems of our largest trading partner, Germany, which will act as a decrement to the GDP.
“The Polish industry is an unknown, it can surprise, because last year we had increases of over 15-16% in some areas, and perhaps the increased consumption we are all hoping for will drive the Polish industry,” suggested the expert from the Confederation of Leviathan.
The rise in consumption should be facilitated by wages, which, as in recent months, are expected to rise faster than prices. The phased increase in the minimum wage, the increase in child benefits to PLN 800, and the persistently low unemployment rate of 5% will contribute to the increase in consumers’ purchasing power. This might compensate for the weaker foreign demand, which particularly affected the production sector. The PMI index, which reflects moods in industry, has shown that this sector has been in decline since May 2022 (with a reading below 50 pts). In December 2023, this index was 47.4 pts, more than one point less than predicted, which also denotes a clear reversal compared to November. The also historic readings of the Industry Production Index since February 2023 were negative year on year, except for October.
The average annual inflation is expected to be half as much as in 2023, but still distinctly above the inflation target, reaching between 5 and 6%.
“Poles have been accustomed in the past year to live under the motto of inflation growth and high inflation. It definitely will not abate this year. We can expect that we will continue to oscillate around 5% in terms of annual inflation growth,” predicts Mariusz Zielonka, “Another factor that will be bothersome are still high interest rates. This end-year rally, as I call it, with regard to interest rates and the cuts that were fuelled by the elections, is likely to end this year, and throughout the year we will not observe any decrease in interest rates, so borrowers will certainly be in a minor mood.”
From October 2021 to September 2022, the Monetary Policy Council had been raising interest rates, increasing the reference rate level from 0.10% to 6.75%. A year later, in September 2023, in a surprise move, the cost of money was reduced by 75 basis points, and a month later, as expected, by another 25 basis points. Inflation, meanwhile, which peaked in February 2023 at 18.4% in annual terms, slowed sharply in the following months, to 6.1% in December.
“There is a lot of uncertainty about how the government will decide to switch off the inflation shields and what effect it will have on the lives of citizens. There is no doubt that these should be turned off, as we cannot function in permanent price control. The question remains open and it seems that the government has no idea how to withdraw from the inflation shields in a way that does not harm citizens,” emphasizes the economic expert from the Confederation of Leviathan.
In his opinion, turning them off all at once would mean an increase in the inflation index by 0.9 percentage points, so such a scenario is unlikely.
“The anti-inflation shields were launched to protect citizens. Initially, they had a slightly different dimension, as they defended the inflation indicator from exceeding 10%, but it quickly exceeded this level and then the government changed the narrative and switched to helping citizens. At the moment, there are no reasons on the market for raw materials, materials, energy why these anti-inflation shields should be continued. The question remains open as to how to get out of them sensibly,” says Mariusz Zielonka.
