Main trends in the Polish economy

Gross Domestic Product

Based on the preliminary estimates of the Central Statistical Office, in 2019 GDP increased 4.1% in real terms. Household consumption, up 3.9% from 2018, remained the main driver of economic growth. The maintained robust consumption growth was supported by an increase in employment, a decline in the rate of unemployment and higher real incomes. Also gross fixed capital formation was a major contributor to strong economic growth. Its growth rate stood at 6,9%. Consequently, the investment rate in the economy increased to 18.6% in 2019, compared to 18.2% in the previous year. Despite deterioration of the business climate in the Polish economy, the GDP growth rate was also supported by net exports, which contributed 0.8 p.p. to GDP growth in 2019. However the contribution of the change in inventory levels was negative (-0.9p.p.).

Decomposition of GDP growth in 2016-2019

Source: Central Statistical Office, preliminary estimate of GDP in Q4, 2019 as at 28 February 2020.

Labor market and consumption

In 2019, the circumstances on the labor market continued to improve from an employee point of view. Salaries increased at a fast pace, employment grew and the unemployment rate decreased, albeit slower than a year earlier.

The most readily available information about the labor market comes from the business sector. In 2019, average headcount grew by almost 165 thousand people, as compared to an increase by 213 thousand people in 2018. In December 2019, the average monthly headcount in enterprises was 2.6% higher than the year before. The growth in employment, coupled with the declining working-age population, resulted in a lower unemployment rate. The registered unemployment rate in December 2019 was 5.2%, compared to 5.8% in December 2018. At the end of 2019, the seasonally adjusted rate of economic unemployment (according to Eurostat) stood at 3.3%, which was below the European Union average (6.2% in December 2019) and the euro area (7.4% in December 2019).

The growth rate of an average monthly salary in the business sector showed a slight downward trend in 2019. The nominal average monthly salary in this sector increased in 2019 by 6.5% compared to a 7.1% increase in 2018. However the salary growth rate in the entire economy did not slow down. Thanks to a high increase in salaries in the state budget sphere in 2019, the average monthly wages in the Polish economy increased by 7.2% compared to 7.1% in 2018. The increase in disposable income, supported by introduction of additional social benefits and reduction of PIT, accelerated in 2019 compared to the year before, which is confirmed by the data for the first three quarters. The robust growth in disposable income, coupled with high consumer confidence indicators, contributed to the achievement of a relatively high rate of growth in household consumption in 2019 (3.9%).

Inflation, monetary policy and interest rates

In 2019, the consumer price index (CPI) increased by 2.3% in annual average terms, compared to 1.6% in 2018. In December 2019, consumption prices were 3.4% higher than the year before and net core inflation (CPI without the prices of food and energy) stood at 3.1% y/y. The increase in information was generated primarily with the increasing prices of services which in December 2019 were 6.1% higher than the year before. With low core inflation in the euro area, the room for increases in commodity prices remained curbed – in December 2019 commodity prices were 2.4% higher than at the end of 2018.

In 2019, the Monetary Policy Council decided not to change interest rates. They remained flat at the level set in March 2015 – the reference interest rate was 1.5%. According to the Monetary Policy Council, the current level of interest rates is still conducive to keeping the Polish economy on a sustainable growth path and helps it preserve macroeconomic balance.

Public finance

In the justification for the draft 2020 budget, the Finance Ministry estimates that the state budget deficit in 2019 was PLN 14.4 billion, which is by half lower than the PLN 28.5 billion planned. This means that the state budget deficit stood at 0,6% of GDP only. The State Treasury debt at the end of December 2019 was PLN 973,3 billion, up by PLN 19 billion (+2%) from the beginning of 2019. According to the European Commission’s forecasts of November 2019, the deficit of the general government sector in Poland in 2019 will amount to 1.0% of GDP. In 2019 Poland had no problems whatsoever in obtaining market financing – the Finance Ministry reported that over 40% of its borrowing needs planned for 2020 had been pre-financed at year-end.