Over the medium term, a key challenge is a tightening labor supply made more acute by POLAND Key conditions and the aging population. The recent large influx ofdisplacedpeoplefromUkrainecouldhelp challenges address the labor market tightness. Achiev- ing decarbonization commitments is anoth- Table 1 2021 The well-diversified Polish economy has er challenge. Institutional strengthening is Population, million 37.9 proven to be one of the most resilient in the needed for sustained and inclusive growth GDP, current US$ billion 658.1 EU, with employment growth in 2020 de- and for narrowing regional disparities. GDP per capita, current US$ 17365.9 spite a relatively small contraction in GDP a 0.4 International poverty rate ($1.9) of 2.5 percent, the first output contraction a 0.5 since 1991. Lower middle-income poverty rate ($3.2) Upper middle-income poverty rate ($5.5) a 1.2 A sound macroeconomic framework, ef- Recent developments Gini index a 30.3 fective absorption of EU investment funds, School enrollment, primary (% gross) b 97.2 a sound financial sector, better access to The economy rebounded strongly from the b 77.9 long-term credit and access to European COVID-19-related recession, with output Life expectancy at birth, years labor markets have supported long-term expanding by 5.7 percent in 2021. Poorer Total GHG Emissions (mtCO2e) 321.7 inclusive growth and poverty reduction. workers, who saw sharper income impacts Source: WDI, Macro Poverty Outlook, and official data. Strong domestic labor markets and in- during the early stages of the pandemic that a/ Most recent value (2018), 2011 PPPs. b/ Most recent WDI value (2019). creases in median and bottom 40 real in- fed into rising inequality, saw a rebound in comes have supported private consump- incomes. Even as the ample fiscal stimulus tion. With an improving business environ- provided in the wake of the crisis tapered off The Polish economy rebounded from the ment, Poland integrated well into regional in 2021, domestic demand expanded by 8.2 value chains (RVCs). Higher private in- percent, on account of robust household COVID-19 recession, expanding at its vestment, an improved innovation ecosys- consumption, a recovery in investment, and fastest pace since 2007. Easing of tem, and further upgrading of RVCs are rebuilding of inventories. COVID-related restrictions, robust in- needed to boost productivity and growth. A strong labor market supported wage vestment, and favorable labor market The full economic and social impact of growth, while high-capacity utilization COVID-19 remains uncertain as new vari- and strong corporate balance sheets sup- conditions supported the recovery. Infla- ants emerge amidst a vaccination rate of 66 ported investments. tion has accelerated markedly, fueled by percent of the adult population. Pent-up demand and continued income sharp increases in commodity prices and The unprecedented policy response to mit- growth fueled a 6.2 percent expansion in supply chain disruptions, feeding into igate the impacts of the COVID crisis and household consumption, translating into rising poverty. The war in Ukraine is inflationary pressures has narrowed avail- double-digit import growth. Robust export able fiscal space. demand from the EU supported the recov- impacting the economy, through com- Increased spending and tax expenditure ef- ery in the industrial sector and exports, modity prices and trade channels, confi- ficiency is needed to rebuild fiscal buffers, however the contribution of net exports to dence effects, and the large influx of dis- accommodate higher spending on health, growth was negative. placed Ukrainians. the green transition, and to prepare for the Inflation has accelerated markedly since growing fiscal burden arising from aging. mid-2021, to 8.5 percent in February 2022, FIGURE 1 Poland / Real GDP growth and contributions to FIGURE 2 Poland / Actual and projected poverty rates and real GDP growth real GDP per capita Percent, percentage points Poverty rate (%) Real GDP per capita (constant LCU) 15 10 70000 9 10 60000 8 7 50000 5 6 40000 5 0 30000 4 -5 3 20000 2 10000 -10 1 2000 2003 2006 2009 2012 2015 2018 2021 2024 0 0 Gov. cons. Exports GFCF 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 Inventories Private cons. Imports International poverty rate Lower middle-income pov. rate Statistical disc. GDP Upper middle-income pov. rate Real GDP pc Sources: GUS, World Bank staff calculations. Source: World Bank. Note: see Table 2. MPO 31 Apr 22 well above the upper bound of the targeted resulted in an improvement in the general requested €23.9 billion in grants and €12.1 range. Strong increases in energy and agri- government deficit to 3.5 percent of GDP in billion of preferential loans under the cultural commodities, as well as continued 2021 from 7.1 percent of GDP in 2020. “Next Generation EU”, which is expected disruptions in supply chains fueled infla- The financial sector is well capitalized and to be approved in March. tion. A fiscal package aimed at limiting in- has limited direct exposure to Russia, Rising food and electricity prices are ex- flation (Anti-inflation Shield) and consist- Ukraine, or Belarus. pected to weigh heavily on poorer seg- ing of temporary cuts to VAT rates on elec- ments, who devote 50 percent of their tricity, heat energy, natural gas and basic monthly spending on food and energy. food products, abolition of excise tax on Minimum wage growth of 7.5 percent in electricity sold to households, lowering of Outlook 2022 is expected to be outstripped by in- excise tax on motor fuels, and compensa- flationary pressures, leading to a decline tion for natural gas distributors, is expect- Economic growth is expected to decelerate in the real minimum wage in 2022. While ed to shave off 2.1 percentage points from to 3.9 percent in 2022, as high inflation, measures under the Anti-inflation Shield CPI in 2022 compared to a business-as- monetary policy tightening, negative con- will soften the household impacts, the usual scenario. fidence effects related to the war in share of the population at risk of poverty is High inflation triggered a faster than ex- Ukraine, and slowing demand in key trad- expected to remain elevated through 2022 pected normalization in the monetary pol- ing partners weigh on growth. and 2023. icy stance, with the central bank raising its The spillover from the war in Ukraine is ex- Higher import prices, and higher primary reference rate by 300 basis points since Oc- pected to be significant, with key transmis- income outflows are expected to result in a tober 2021. sion channels including forced displace- deterioration in the current account deficit Since the start of the war in Ukraine, more ment, commodity prices, trade, and confi- to 2.5 percent of GDP in 2022, with a mod- than 2.3 million displaced Ukrainians ar- dence effects. While direct economic link- erate improvement over 2023-2024 as rived in Poland. The government has re- ages outside the energy sector are limited, terms of trade improve. acted rapidly, granting displaced popula- higher energy and food prices, increased The fiscal deficit is expected to remain tions the right of temporary residence and uncertainty, and disruptions to supplies to above the medium-term budgetary objec- access to key public services (health, edu- the auto industry will weigh on growth. tive, as a result of the structural tax reform cation), social assistance, and housing. A large infrastructure and local public in- (Polish Deal) and the temporary impact of The current account recorded a 0.4 percent vestment program, including through the the Anti-inflation Shield. The fiscal cost of deficit in 2021, as exports of passenger ve- National Recovery and Resilience Plan these packages is estimated at 0.7 percent hicles were affected while high global in- (NRRP), higher spending on health, and a and 1.1 percent of GDP, respectively in termediate goods prices fueled imports. boost to consumption related to the large 2022. Furthermore, there will be additional The unwinding of the large 2020 fiscal stim- influx of displaced people are expected to public spending to manage the large influx ulus and the strong increase in tax revenues support growth. To fund its NRRP Poland of displaced people from Ukraine. TABLE 2 Poland / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 4.7 -2.5 5.7 3.9 3.6 3.7 Private Consumption 3.9 -2.9 6.2 3.9 3.3 3.2 Government Consumption 6.5 4.9 3.6 2.4 2.5 2.7 Gross Fixed Capital Investment 6.1 -9.0 8.0 5.3 5.1 5.4 Exports, Goods and Services 5.2 0.1 6.0 5.5 4.2 4.5 Imports, Goods and Services 3.0 -1.2 7.0 5.6 4.0 4.3 Real GDP growth, at constant factor prices 4.6 -2.6 5.7 3.9 3.6 3.7 Agriculture -0.8 13.8 1.3 2.0 1.0 1.0 Industry 2.2 -5.2 7.0 4.6 3.3 3.3 Services 6.0 -1.8 5.3 3.6 3.8 3.9 Inflation (Consumer Price Index) 2.3 3.4 5.1 9.6 7.5 4.0 Current Account Balance (% of GDP) 0.5 2.9 -0.4 -2.5 -1.6 -1.3 Net Foreign Direct Investment (% of GDP) -2.0 -2.1 -1.2 -1.1 -0.9 -0.9 Fiscal Balance (% of GDP) -0.7 -7.1 -3.5 -3.5 -3.6 -2.9 Debt (% of GDP) 45.6 57.4 57.0 54.5 51.9 49.5 Primary Balance (% of GDP) 0.6 -5.8 -2.5 -2.0 -2.3 -1.8 a,b International poverty rate ($1.9 in 2011 PPP) 0.3 0.4 0.3 0.4 0.3 0.3 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 0.5 0.5 0.5 0.6 0.6 0.5 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 1.1 1.2 1.2 1.6 1.4 1.3 GHG emissions growth (mtCO2e) -5.4 -6.0 1.4 -0.2 -0.5 -0.6 Energy related GHG emissions (% of total) 87.4 87.7 87.3 87.0 86.9 86.9 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on ECAPOV harmonization, using 2007-EU-SILC and 2018-EU-SILC.Actual data: 2018. Nowcast: 2019-2021. Forecasts are from 2022 to 2024. b/ Projection from 2019 to 2021 using point-to-point elasticity (2007-2018) with pass-through = 1 based on GDP per capita in constant LCU. Projection from 2022 based on estimates incorporating differential income growth among poorer households. MPO 32 Apr 22