Wednesday, July 10, 2024

Deloitte: Poland enters the phase of economic expansion

ECONOMYDeloitte: Poland enters the phase of economic expansion

The divergence of economic moods in Poland and Germany continues to persist. By the end of the year, Poland was already transitioning from a revival phase to full expansion, while Germany remained in a recessionary trend. Market and institutional consensus forecasts collected by Deloitte indicate that a mild rebound in growth is expected in Central Europe in 2024. The forecasted GDP growth for the region, weighted by the size of each economy, is 2.5%. The Polish economy will grow by 2.7%, significantly more than the German GDP, which will only increase by 0.5%.

The primary theme of Deloitte’s first Economic Outlook for Central Europe of this year is the uncertainty of macroeconomic forecasts. It emphasizes that economic processes are unpredictable and even large disruptions, such as recessions, often evade economists’ predictions. However, forecasts still have their value as they perform better than simple assumptions such as the assumption that the economy will grow next year according to its long-term average. We also compare our aggregated GDP and inflation forecast consensus from a year ago, showing that in 2023, Estonia was the only country in the region to exceed our growth forecast range, while Croatia and the Czech Republic exceeded our inflation forecast range.

Over the past year, a divergence in the Economic Sentiment Indicator developed by the European Commission (comprising industry, construction, services, retail trade, and consumer confidence) was observed in Poland and Germany. Improvement in sentiment in Poland contrasted with a downturn in our western neighbor. Poland transitioned from revival to expansion in December 2023. Meanwhile, Germany remains in a recession, although the trend has been less negative in the last 5 months.

In Poland, consumer confidence and construction industry sentiment remain about 10% above the post-pandemic average. In the Polish industry, the mood is consistent with the post-pandemic average. In contrast, the construction and industry sectors in Germany still lag, 20% and 10% respectively, below the post-pandemic average. This is linked to the ongoing weakness of industrial production in the eurozone and the impact of heightened interest rates, discouraging borrowing and weakening demand. High energy costs, particularly affecting energy-intensive sectors, remain a significant problem.

The Deloitte aggregated market and institutional forecast consensus suggests a reduction in GDP growth forecasts in 8 out of 11 Central European countries as well as Germany compared to the autumn consensus. At the same time, faster desinflation in 2024 is now expected in 7 out of 11 countries in the region. The recession in Germany has significantly reduced economic growth in Central Europe in 2023. The past year ended with a projected GDP growth of 0.5% (compared to -2.5% in Estonia and +2.6% in Croatia). According to the consensus, in 2024, we can only expect a mild rebound in growth in Central Europe as the euro zone’s monetary policy remains restrictive. The region’s economies will grow on average by 2.5% (ranging from 1.5% in Czech Republic and Estonia to 3.4% in Romania) according to the GDP weighted average. The Polish economy, the largest in the region, is set to grow at 2.7%. This is significantly faster than in Germany, where growth is expected to be only 0.5%.

Although the past year was a period of disinflation, average inflation remained high in 2023, averaging 10.4% in Central European economies and 6.3% in Germany. Our forecast consensus suggests that inflation will also remain above the target in 2024, reaching an average of 4.2% in the region (from 2.8% in Lithuania to 6.0% in Poland) and 2.9% in Germany. While forecasts for 2025 point to a return of inflation in Germany to 2.1%, the average in Central Europe is expected to be 3.0% (between 2.2% in Slovakia and 4.0% in Poland). Additionally, there is significant uncertainty around the exchange rates of the zloty and the forint given the region’s highest inflation rates. This is reflected in the two to three times greater divergence in predictions for these currencies compared to the Czech crown and Romanian leu.

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