The Polish economy will grow by some 3.2% in 2015, both the European Commission (EC) and World Bank forecasts show. Forecasts for 2016 from these institutions are also similar: The EC expects a 3.4% growth, while the World Bank: 3.3%.
The European Bank for Reconstruction and Development (EBRD) presented an only slightly lower 2015 forecast in January: 3.0% growth.
The EC's forecasts, presented at the beginning of February, constitute an upward revision of projections published in November last year, when the EC expected Polish GDP to grow by 2.8% in 2015. If the EC forecasts materialize, Polish growth will be third-highest in the EU after Ireland (3.5%) and Malta (3.3%).
Weak demand in the euro zone and the Russia-Ukraine conflict should not affect the Polish economy to the extent expected earlier, EC analysts believe.
Moreover, the zloty weakening versus the currencies of main trading partners a result of the crisis east of Poland, may support exports as well as substitution of imports with domestic production. On the other hand, escalation of the Russia-Ukraine conflict may weaken economic activity through weaker imports and higher gas prices.
Low financing costs, a result of interest rate changes, are a positive factor which brings about a recovery in corporate investments, the EC believes. Ongoing lending growth should support further private investments.
Exports will remain at moderate levels due to the fact that repercussions of the Russia-Ukraine conflict will become more tangible and economic growth will remain weak in the euro zone, the Commission forecasts.
The exports-to-GDP ratio may decline this year and in 2016. Additionally, the possible zloty strengthening may hurt exports, EC analysts claim. The looming launch of the ECB quantitative easing (QE) should be the reason behind a possible zloty strengthening. The program consists in repurchasing assets worth EUR 60 bln a month.
The situation on the Polish labor market should improve this year, EC experts forecast. Unemployment calculated according to the EU's labor force survey (LFS) methodology is to fall to 8.8% in 2015 and 8.3% in 2016 from the 2014 level of 9.1%.
"The Polish labor market should improve thanks to a solid growth of the pace of economic activity and increasing output capacity," the EC document reads. This improvement should, in turn, translate to an increase of nominal wages and higher incomes, which should support consumption.
The EC additionally forecasts further improvement in the state of public finance. The public finance sector deficit should fall to 2.9% of GDP in 2015 from 3.6% last year and go down further to 2.7% in 2016.
Budget revenues will rise along with economic growth, EC analysts note. On the spending side, the planned cost of coal mines’ restructuring as well as increase in other social spending such as a higher indexation of pensions, will offset savings in other areas, such as a wage freeze in the public sector, the EC report reads.
CPI should reach negative 0.2% in 2015 versus the 0.1% level recorded last year. In 2016 Poland should exit this mild deflation: price growth is expected to reach 1.4%.
Public debt should amount to slightly below 50% of GDP in 2015 and 2016 (49.9% and 49.8%, respectively), the EC estimates. However, public debt forecasts are burdened with high uncertainty as the FX fluctuations may affect a large part of it, the authors of the forecast stress.
Among commercial banks, the most recent forecast comes from Citi Handlowy, whose economists presented their expectations mid-February: they increased their expected GDP growth reading for Poland to 3.7% from 3.4% previously.
The upward revision is a result of better data from the Polish economy (among others, financial activity indicator, industrial output, labor market), low fuel prices as well as the positive surprise of the Q4 2014 GDP growth in Germany, the analysts explained. The data from the German economy surprised many economists, surpassing their expectations.
Germany’s GDP grew by 0.7% in Q4 2014 versus expectations for 0.3% growth.
Poland's GDP growth may even surpass the 3.7% mark if uncertainty related to the situation in Eastern Europe and in Greece abates, Citi Handlowy economists believe.
Although the data which point to economic growth do not warrant an interest rate cut, signals sent from some members of the Monetary Policy Council (MPC), Poland's rate-setting body, suggest that interest rate cuts may occur.
"Taking into account the comments of several MPC members, we expect interest rates to be cut by a total of 50 base points (bps)," Citi Handlowy analysts wrote. "The first rate cut will probably occur in March and will amount to 25 bps."
At the same time, deeper rate cuts in Poland may be hindered by the accelerating American economy and the risk of increasing interest rates by the United States Federal Reserve.
Poland based its 2015 budget, passed mid-December, a 2015 GDP growth of 3.4%.
Source: Ministry of Treasury