Bank Millennium forecasts a 2.9 percent economic growth with an upward perspective for 2024, which will be primarily driven by resurging private consumption, lowering the average annual inflation rate at just over 5 percent, and possible interest rate cuts of 50-75 bp by the Monetary Policy Council (RPP). “This will be a period of returning to balance in the economy, but not all aspects of this process will be fully implemented,” predicts the bank’s chief economist, Grzegorz Maliszewski. This is due to several events on the horizon that will significantly influence markets and investors.
“In 2024, the Polish economy will strive for balance, which is understood in several ways: inflation will be lowered from very high levels to moderate levels, economic growth will accelerate, and interest rates will be reduced. However, this will only be the beginning of the journey. This balance will certainly not be achieved in all aspects this year. For example, inflation has the potential to decrease, but it will not reach the central bank’s target level, which is a neutral level for the economy. Interest rates will be lowered, but gradually, so they will still be higher than before the outbreak of the pandemic.” Grzegorz Maliszewski, chief economist of Bank Millennium, tells Newseria Biznes agency. “How far we will get in the process of recovery is still very uncertain as there are many factors that can disturb this process, such as the geopolitical situation or the results of the elections in the United States.”
The expert assesses that the main factor driving the Polish economy in 2024 will be private consumption. In January, the consumer moods of households in Poland improved: the current consumer confidence indicator rose to -12.6 points from -15.2 points in December. At the same time, the leading index improved to -3.8 points from the previous -6.4 points. The survey results also indicate that households expect a better economic situation in the country and express less fear about unemployment. This bodes well for household spending in 2024.
“The income situation of households will be good and wages will probably continue to rise at a double-digit rate. This momentum will slow down a bit, but it will still be high, partly due to a 20 percent increase in the minimum wage, and also announced pay raises in the budgetary sphere and for teachers. This will be compounded by an increase in social benefits, so household incomes will grow in nominal terms. Their purchasing power will improve as falling inflation will mean that they will have more funds for consumption,” says Grzegorz Maliszewski.
The average monthly salary in the enterprise sector increased in December by 9.6 percent y/y, that is slightly slower than a month earlier (11.8 percent y/y). This means that December was the first month in almost two years in which the annual wage growth rate fell to single digits. Regardless, the average wage exceeded the level of PLN 8,000 gross for the first time in history, confirming the persistently high wage pressure despite falling inflation. Analysts also predict that despite a strong increase in the minimum wage in 2024, the unemployment level (the registered unemployment rate ended 2023 at 5.1 percent, close to the lowest in history) will remain stable.
According to the forecasts of the Bureau of Macroeconomic Analysis of Bank Millennium, the economic growth in 2024 will accelerate to 2.9 percent, and the risks for this forecast are pointing upwards. However, the factor that may weaken it is the difficult economic situation in Germany, which is Poland’s main trading partner.
“Germany went into recession in 2023. Current forecasts show that GDP growth will be positive this year, but we cannot completely rule out the scenario that Germany will be in recession for the second year in a row. This is unfavorable from the perspective of Polish enterprises and exporters. Therefore, the revival of consumer demand will be offset by weaker external demand,” explains the chief economist of Bank Millennium.
In January, the ZEW Index, which illustrates analysts’ expectations for the German economy, rose to 15.2 points from 12.8 points in December. This is better than expected and the highest level since February 2023, which fits into the image of gradual improvement of moods in Germany and the entire euro area. The composite PMI index for the entire euro area, illustrating the mood in the industry and services combined, rose in January to 47.9 points. Although it is still below the neutral level of 50 points separating recovery from slowdown, the index value is the highest in half a year. According to economists, this confirms that the euro area economy has already passed the trough of the business cycle, but it is difficult to talk about a recovery. The business situation in the euro area remains weak due to limited demand, suffering from high inflation and high interest rates.
Analysts predict that under these conditions the ECB’s Governing Council will not rush to start cutting interest rates. Also in Poland there will be no significant space for easing monetary policy this year. Grzegorz Maliszewski believes that the RPP may make interest rate cuts of 50-75 bp in 2024. However, they will not return to pre-pandemic levels until at least 2026.
“The zloty – after a very good second half of last year, when it was the best performing currency among emerging markets – in my opinion, also has the potential to strengthen this year, although this space is much smaller. This results from the fact that many positive factors that may affect the Polish currency this year have already been taken into account by the markets. Among these factors is the tightened narrative by the Monetary Policy Council and a smaller than it seemed a few months ago scale of interest rate cuts,” says the chief economist of Bank Millennium.
Last year, the strengthening of the zloty was influenced by a very positive market reaction to the results of the last parliamentary elections and the warming of relations with the European Union, as this increases the possibilities of EU funds flowing to Poland. Its image also improved in the eyes of foreign investors. These factors have also been largely priced in by the markets.
“We expect that the EUR/PLN exchange rate will drop to around 4.27 by the end of this year, so compared to last year, this is a smaller scale of potential strengthening. However, we are aware that on this path of strengthening, we will also deal with episodes of large fluctuations, because there are certain risk factors that will affect market sentiment. This concerns, among other things, the timing and scale of interest rate cuts by the main central banks, i.e. the Fed and the European Central Bank. How the elections in the United States will end will also cause high volatility on the market in the second half of this year. We also have an uncertain geopolitical situation,” lists Grzegorz Maliszewski.
