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Poland: Long-term Forecast Summary

Core Content

This document provides a long-term economic forecast for Poland, covering GDP growth, inflation, unemployment, fiscal and monetary policy, and the impact of EU funds and demographic changes on the economy. The analysis is produced by Bank BGZ BNP Paribas and reviewed by BNP Paribas, with the caveat that it does not contain investment research recommendations.

Main Economic Forecasts

GDP Growth

• Projection: Economic growth in Poland is expected to decelerate over the coming years, reaching approximately 2% by 2025.
• Trend: The slowdown is attributed to decreasing labor force growth due to unfavorable demographics.
• GDP Growth Rates (2013–2025):
  • 2013: 1.4%
  • 2014: 3.3%
  • 2015: 3.9%
  • 2016: 2.8%
  • 2017: 3.2%
  • 2018: 2.6%
  • 2019: 2.9%
  • 2020: 2.7%
  • 2021: 2.6%
  • 2022: 2.3%
  • 2023: 2.2%
  • 2024: 2.1%
  • 2025: 2.1%

Inflation

• Projection: Inflation is expected to stabilize around 2% in the first half of the next decade.
• Trend: Inflation was around the central bank’s 2.5% target in 2017–2018 but is expected to slow after that.
• CPI Growth (2013–2025):
  • 2013: 0.9%
  • 2014: 0.0%
  • 2015: -0.9%
  • 2016: -0.6%
  • 2017: 2.6%
  • 2018: 2.4%
  • 2019: 1.7%
  • 2020: 2.0%
  • 2021: 2.1%
  • 2022: 2.1%
  • 2023: 2.1%
  • 2024: 2.0%
  • 2025: 1.9%

Unemployment Rate

• Trend: The unemployment rate is expected to gradually decrease over the period, from 13.5% in 2013 to 5.7% in 2025.
• Trend Unemployment Rate:
  • 2013: 13.5%
  • 2014: 12.3%
  • 2015: 10.5%
  • 2016: 9.0%
  • 2017: 7.9%
  • 2018: 7.0%
  • 2019: 6.3%
  • 2020: 5.9%
  • 2021: 5.6%
  • 2022: 5.5%
  • 2023: 5.5%
  • 2024: 5.7%
  • 2025: 5.7%

Key Factors Influencing the Economy

Demographics and Labour Force

• The shrinking working-age population will lead to a decline in the trend labor force over the next decade.
• Despite this, the trend employment ratio is expected to rise, driven by the need to replace retiring workers.
• The labor force participation rate is increasing, but the overall trend labor force is decreasing.

Labour Productivity

• Labour productivity is projected to continue rising at 2–2.5% per year.
• Productivity growth will become more challenging in the future, especially as EU fund inflows start to decelerate from 2021 onwards.
• Productivity is closely linked to the capital-to-labour ratio and technological progress.

Fiscal Policy

• Fiscal Deficit: The general government deficit is expected to remain below 3% of GDP, despite pressures from rising social benefits and pension payments.
• Public Debt: Public debt is projected to increase steadily, potentially breaching 55% of GDP by 2025 due to the slowing pace of nominal GDP growth.
• Retirement Age Reform: The repeal of the retirement age reform (returning to 60 for women and 65 for men) will increase pension costs, starting to impact the budget in 2018.

Monetary Policy

• The policy rate is expected to rise in the near term, primarily due to higher inflation and tighter monetary policy abroad.
• The rate is projected to stabilize at 2.50% from 2019 onwards, aligning with the nominal GDP growth path.
• Interest rate hikes are expected to be around 100 basis points over the next two years, bringing the rate to 2.50%.

EU Funds and Investment

• EU structural funds have historically been a key driver of investment in Poland.
• The financial agenda for 2014–20 is expected to continue influencing investment, though the next framework (after 2020) will be less generous, with available funds about two-thirds of the previous level.
• EU funds are expected to remain an important component of capital spending, especially in the context of declining productivity gains.

Current Account and Savings

• The current account balance is derived from the difference between the savings and investment ratios.
• The model-based projections suggest that CPI inflation will fluctuate between 1.5% and 2.5% over the next decade.
• The current account is influenced by both domestic economic performance and global commodity prices, such as oil.

Methodology

• The trend GDP growth is calculated based on trend employment and trend labor productivity.
• The output gap is used as a proxy for spare capacity and helps guide GDP and inflation forecasts.
• A simple capital stock proxy is used, based on a long-term rolling average of the investment-to-GDP ratio, which is similar to OECD estimates.

Legal and Disclosure Notes

• The analysis is produced by Bank BGZ BNP Paribas and reviewed by BNP Paribas.
• The report is for Professional Clients and Eligible Counterparties under MiFID.
• The document does not contain investment research recommendations.
• It does not constitute an offer or solicitation to buy or sell any financial instruments.
• The information is based on public sources and is not independently verified.

Conclusion

Poland's long-term economic outlook is shaped by demographic shifts, EU funding dynamics, and the interplay between fiscal and monetary policies. While GDP growth is expected to slow to 2% by 2025, inflation is projected to stabilize around 2%, and the unemployment rate to decline gradually. Fiscal sustainability remains a priority for Polish authorities, with a focus on keeping the deficit under 3% of GDP. The policy rate is anticipated to stabilize at 2.50% from 2019 onwards, and EU funds are expected to continue supporting investment despite reduced availability after 2020.