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Euro 2024 is no longer for us. Santander: but in terms of GDP growth, Poland should be among the European leaders

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In terms of economic growth in the next two years, Poland should be among the European leaders – said economists from Santander Bank Polska. In their opinion, in 2025, GDP growth should amount to 3.5 percent.

“No, Poland will not become the European football champion. However, in terms of GDP growth in the next two years, it should be among the leaders. We certainly have a chance to take first place in 2025 when it comes to the lowest unemployment and the highest inflation. High the fiscal deficit will also place us close to the leaders in the EU,” we read in the Santander Bank Polska report devoted to macroeconomic forecasts.

The economy is on the path of gradual recovery

Santander's economists emphasize that although data – e.g. on industrial production – show high variability, – as they assessed – the Polish economy is on the path of gradual recovery. They recalled their forecasts from a year ago, when they estimated that economic growth would accelerate to approximately 3%.

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“With hindsight, we estimate that this scenario, assuming the leading role of consumption in the economic recovery this year, but also overcoming the downward trend in industry, remains valid. We anticipate a further slight acceleration of GDP next year, up to 3.5%, with a risk asymmetric upwards and a changing structure of growth: consumption dynamics will probably fade due to slower growth in real incomes, but investments, strongly supported by the spending of EU funds, should come to the fore,” we read in the report.

“There are reasons to believe that the slight decline in the number of working people in the first quarter of this year resulted not so much from the decline in demand for workers (economic activity began to grow, the number of vacancies increased), but from restrictions on the labor supply. We do not think that the shortage of workers was to eliminate the prospects for faster economic growth in the coming quarters, but it may cause wage pressure to be a severe problem for companies, making it more difficult for the central bank to make further progress in the disinflation process,” we read in the report.

Inflation started to come out of the hole

According to its authors, the wage dynamics in 2025 will slow down from the current level to just over 10%. up to 7-8 percent The lower temperature is supposed to facilitate this inflation and smaller scale of growth minimum wage (which – according to the government proposal – is to be 7.6%). In addition, there will be an even more modest increase in wages in the public sector than this year.

“Inflation has started to come out of the hole, but for now quite sluggishly – the increase in CPI (consumer inflation – ed.) in May to 2.5% y/y was the sixth consecutive downward surprise compared to market forecasts, and the surprise concerned both commodity prices and services. However, it seems to us that both the domestic macro factors (economic recovery driven mainly by consumption, high wage growth) and the external environment (reversing the downward trends in global prices of raw materials and food, currency weakening) are less and less conducive to rapid disinflation and , overlapping with the increase in energy prices from July resulting from regulatory changes, will increase CPI inflation to approximately 5% by the end of this year, and will stabilize core inflation around 4%. – say Santander economists.

In their opinion, inflation should decline again next year, although the pace of this decline will be relatively slow due to the economic recovery and the still rapid increase in unit labor costs. The report also included a forecast that core inflation would be stable and remain close to 4%.

“We do not change expectations regarding monetary policy: in our opinion, the Monetary Policy Council will lag behind most central banks in the world, keeping interest rates unchanged at least until mid-2025. Recent statements of the President of the NBP and members of the Monetary Policy Council clearly indicate that interest rates will be reduced “there is nothing to count on this year, and the condition for starting a discussion on easing policy will be a lasting decline in inflation to the target – visible in the data and/or forecasts of the central bank,” Santander economists point out.

Risks for the deficit

In their report, they drew attention to this year's implementation budget deficitwhich – as they assessed – is “clearly worse” than in previous years.

“After May, the rolling 12-month budget balance reached a record level of PLN 118 billion, compared to the full-year plan of PLN 184 billion. The risk for the fiscal deficit is, on the one hand, an ambitious plan for tax revenues, in particular VAT, and on the other hand, unforeseen in the expenditure burden act. The European Commission announced that it would propose including Poland (together with six other countries) in the excessive deficit procedure (EDP), but the final decision of the EU Council on this matter may only be made in the autumn, perhaps after the preparation of the government project. budget for 2025. In our opinion, the fiscal consolidation path suggested by the EC should not be too steep, taking into account, among others, Poland's large defense expenditure. We assume that the public finance deficit (…) will amount to approximately 5.5 percent of GDP in 2024, and in the next year it may be reduced by approximately 1 percentage point. – assessed economists from Santander Bank Polska.

Read also: The government was counting on a surge in growth. “Disturbing” information

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