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Wednesday, May 29, 2024

European Financial Congress – inflation, interest rates, GDP. New forecasts for Poland

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Poland’s economic growth in 2023 will slow down to 0.8 percent, and in 2024 it will accelerate to 2.7 percent. This is according to the forecasts of the experts of the European Financial Congress (EKF). Average consumer inflation this year is expected to be 12.8 percent. At the end of 2023, the ratio is expected to slow down to 9.3 percent year on year. Experts expect the NBP reference rate to remain unchanged throughout 2023.

The forecast consensus of the European Financial Congress is based on the opinions of 36 experts and macroeconomists, which were received by May 29, 2023. Experts unanimously expect a “low” in the growth rate of the economy this year. Gross domestic product (GDP) in 2023 in 2023 is expected to increase by 0.8 percent. year on year In 2024, GDP is expected to accelerate to 2.7% annually, and in 2025 and 2026 to oscillate around 3.5%.

“Current forecasts for 2023 and 2024 are slightly better than those formulated six months ago (0.2-0.3 percentage points), while forecasts for 2025 and 2026 may indicate a dynamics of 3.5 percent as a new level of ‘natural ‘ growth rate of our economy, which will have to deal with the falling number of people of working age, and at the same time its growth rate will be limited by a relatively low level of investment,’ reads the June report of the European Financial Congress, ‘Macroeconomic challenges and forecasts for Poland’.

“In order to be able to think about sustainable and sustainable growth at a rate above 4 percent, it is necessary to radically simplify the conditions for doing business and ensure the stability of the regulatory environment in order to boost investments” – added.

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As indicated in the study, the average expected investment growth rate this year is 1.6 percent. Every year. In 2024, an acceleration to 3% is expected, and in the next two years, investments are to oscillate around 5%.

Inflation and wages

According to the EKF study, retail sales will fall by about 0.5% in 2023. Every year. “Except for the pandemic year 2020, when consumption fell by 3.6% yoy due to extraordinary measures and freezing of significant areas of activity for many months, the last time our economy recorded negative consumption readings was in the early 1990s. The decrease in consumption this year is dictated primarily by a significant inflationary hit to real incomes.

At the same time, it was pointed out that wages in the enterprise sector are growing slower than inflation starting from the second quarter of 2022, “and only in the last quarter of 2023 this situation is likely to change.” “The depletion of real income also translates into a lower propensity to buy. In the longer term, the dynamics of private consumption will depend on success in curbing inflation and on the pace of convergence of domestic wages (especially in exporting sectors) to average wages in the West,” it added.

Experts surveyed by the EFC forecast that the average annual CPI inflation (consumer price index) in 2023 in Poland will amount to 12.8 percent. It was noted that thus inflation will be “slightly different from the index for 2022 (14.4 percent)”.

“It is worth noting that the cumulative inflation in the years 2022-2026 will amount to almost 50% yoy. This means that one-third of the value of each zloty from the beginning of 2022 to the end of 2026 will ‘evaporate'” – explained.

In addition, it was noted that “even at the end of the forecast period, the average annual inflation is barely below the upper limit of the inflation target of the Monetary Policy Council – and in 2024 CPI inflation is to almost three times exceed the central inflation target of the Monetary Policy Council (2.5 percent)”.

Interest rates in Poland

Therefore – as it was written in the June report – “expectations formulated – also by some MPC members – for interest rate cuts appear to be unreasonable this year.

Experts expect the NBP reference rate to remain unchanged at 6.75 percent. – throughout 2023. In the following years, as the inflationary pressure weakens, interest rate cuts are expected, followed by a fall in the WIBOR rate.

It is worth noting that the WIBOR rate, which basically reflects the expectations of interbank market participants as to the future development of the short-term NBP rate, will lose importance in favor of the WIRON rate, which basically reflects the historical quotations of the cost of short-term money.


Public finance sector deficit

Forecasts of the deficit of the public finance sector indicate 5 percent of GDP. GDP this year, 4 percent. deficit in 2024 and 3.3 percent. deficit in 2025 and 2026.

“The sector’s deficit in 2024 and beyond (3-4% of GDP), when GDP growth is expected to be close to the potential growth rate achievable in the coming years, illustrates a structural problem in our public finances: spending is chronically too high. economic growth – such as 2023 – it is easy for some commentators to attribute a high deficit to low growth, but in periods such as 2025 or 2026, when GDP growth is expected to reach 3.5%, we should not record deficits at all, but have surpluses to pay off the public debtto ‘make room’ for growth when it slows down,” the EKF report said.

“Meanwhile, experts forecast deficits only slightly lower than GDP growth. Such a situation is unsustainable in the long run – systematic deficits mean a systematic increase in debt” – added.

Among the most important threats to the economic situation in the perspective of 2026, EFC experts mention e.g. stagflation scenario, i.e. a situation in which high inflation and high interest rates persist, which hamper economic growth.

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