According to the NBP, yearly inflation will hit 14.5 percent in 2022 and drop to 13.1 percent in 2023. Single-digit rates will only begin by 2024, when the country's inflation is projected to decrease to 5.9 percent. The central bank's inflation target of 2.5 percent is only expected to be accomplished in 2025.
Figures from Statistics Poland (GUS) showed that inflation in the country hit 17.2 percent in September, and increased to 17.9 percent in October.
The NBP also forecast a 0.7 percent growth in Poland's gross domestic product (GDP) for 2022. Meanwhile, the GUS predicts a 1.4 percent GDP growth in 2023 and a flat two percent GDP growth in 2024.
Amid all these projections, economic activity in Poland is about to weaken because of the heightened uncertainty, a tightening of financing settings and the economy's adjustment to higher commodity costs, according to the European Commission's latest economic forecast.
"The Polish economy continued its upward trajectory in the first half of 2022, although a marked drop in inventories and investment led to a contraction in real GDP in the second quarter. Data on the real economy suggest that growth was at full steam in the third quarter, with industrial output and retail sales expanding at a solid pace. As a result, despite a deterioration in confidence indicators, the second half of the year is expected to see a relatively good performance, leaving annual real GDP growth in 2022 at a projected 4.0 percent," the European Commission (EC) report said.
Increase in inflation due to rise in food and energy prices
As stated by the NBP's November report on inflation, the present increase can be largely attributed to the rise in food and energy prices brought by the war in Ukraine and the enormous increase in money printing by global central banks during the Wuhan coronavirus (COVID-19) pandemic. The growth in these costs implied that input costs also increased, pushing companies to raise the prices they sell to consumers. (Related: European Central Bank head warns of darkening economic outlook for the continent, raising recession fears.)
Almost all members of the NBP's Monetary Policy Council have taken the position that decreasing inflation cannot be permitted to threaten macroeconomic stability. The council agreed to keep interest rates at the current level during its recent meeting.
"A rise in public defense spending and local government investments is set to more than outweigh the drop in private investment, leaving total investment growth in 2023 well into positive territory," the EC report said. "Despite the elevated inflation, private consumption growth is expected to remain upbeat thanks to significant policy support, low unemployment and the inflow of displaced persons from Ukraine."
With regard to foreign trade, the presumed easing of supply blockages should help export growth over the forecast period. Along with low import growth because of the reversal in the inventory cycle, the trade balance is expected to contribute positively to growth in 2023 and 2024. Overall, Poland's real GDP is predicted to slow to 0.7 percent in 2023 and grow to 2.6 percent in 2024.
Sharp labor shortages will possibly mean that the adjustment in the labor market to decreasing economic activity will come from a slowdown in wage growth rather than a hike in the unemployment rate, as companies are reluctant to relieve workers.
As a consequence, the unemployment rate is predicted to increase only moderately to 3.1 percent in 2024. In turn, elevated inflation permits corporations to adapt to soaring energy prices by reducing real wages, which are anticipated to drop until 2023.
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