NOBE Independent Center for Economic Studies

Quarterly forecasts of the economic development of Poland

The expected acceleration of the economic growth finally seems to materialize. As we expected, the GDP growth rate in the second quarter of 2003 was well over 3%. Although the growth of investment was probably still very slow, close to zero, the continuously good export performance led to a major revival of the industrial output, in manufacturing growing at a two-digit level. Relatively stable dynamics of the personal consumption, accompanied by accelerating investment, led to the solid increase of the domestic demand at ca. 2%, while the sluggish imports allowed for the significant positive contribution of the net exports.

For the time being the growth has not been accompanied by any trace of the increase in the disequilibria. CPI inflation remained very low, and the producers’ prices, after the sharp increase in February-March due to inverse supply shocks, deccelerated in the following months. The current account deficit continued to fall well below 3% of GDP.

We maintain our view that the economy passed the turning point in the business cycle. In particular, we expect the further acceleration of the investment activity in the coming quarters, combined with the fast increase in imports and reduction in dynamics of exports. We do not see major treats for the economic stability. In our view, the existing idle capacities in the Polish economy combined with the high unemployment should allow for a long period of the sustainable growth. The CPI inflation is likely to increase, mainly because of growing prices of food, but the producer prices should fall below 2%, following the modest appreciation of the currency. The current account deficit, albeit growing, should not increase to dangerous levels over a few coming years. In general, we maintain the forecast of a visible acceleration of the growth over the next 4 quarters, with slightly falling unemployment, stable currency and low inflation.

The most important questions are connected with the sustainability of the growth, both in the short and medium run.
  1. In the short run, we expect the growth of investment demand accelerating to 8%. Unfortunately, this rebound should not be attributed to any general change in the economic policy of Poland. The investment climate starts to improve mainly because of the approaching European Union accession, improving firms’ expectations about future sales and profits, and an urgent need for modernization of the fixed assets, after two years of the low investment activity. We also expect some improvement in the FDI inflows even before the formal accession to the European Union in May 2004.
  2. Growing investment, together with the stable increase of the consumption, will secure the acceleration of the domestic demand. That should lead to the GDP growth of ca.3.4% in 2003 and well over 4% in 2004.
  3. We do not see treats for the short-term sustainability of the growth. The big negative demand gap should help to keep the disequilibria under control. The wage demands will be restricted by the high unemployment, while the stable currency will lead to the low increase in industrial prices.
  4. The outlook for the medium term looks a bit worse. First, we do not expect any progress in the public sector reform over the next 2 years, partly due to the political cycle (the general elections are scheduled for the autumn of 2005). To the contrary, we expect Poland – as other big EU accession countries for Central Europe – to struggle with the excessive deficits, relatively high taxes, and low efficiency of delivering public goods. Second, we are afraid that the market may react nervously to the change of the composition of the Monetary Policy Council of the central bank. The new council will, most likely, start its activity in the early 2004 by the aggressive cuts in the interest rates. Although we do not see lower rates as a treat, the market may interpret it as an excessive loosening of the monetary policy.
  5. We do not share the views of the Government that the process of accelerating output dynamics will continue for a few years, with the GDP growth rate reaching again the level of 6-7%. To the contrary, we expect the growth to stabilize in the medium run at ca. 4-5%. On the one hand, such an output dynamics will allow for the control of the internal and external disequilibrium, thus allowing for maintaining the low inflation and safe levels of the current account deficit. On the other hand, however, such a growth will not be enough to allow for a significant fall of unemployment.
The period of the major slowdown of the Polish economy is, most likely, over. Unfortunately, the structural reforms – particularly in the public sector – has not been advancing fast enough to strengthen the macroeconomic fundamentals to a degree that would allow for the really rapid GDP growth. Rather than a period of a robust growth with the sharp built-up of the disequilibria, as in the period 1995-98, we expect Poland to enter the path of the moderate GDP growth, with the disequilibria under control.

TABLE ONE. POLISH GDP – pct change vs pvs period
  Quarterly data and forecast Yearly data and forecast
  2003 2004 2003 2004
  Q2 Q3 Q4 Q1 Q2 Q1-Q4 Q1-Q4
GDP Total 3.4 3.5 3.8 3.5 3.8 3.4 (3.2) 4.3 (3.9)  
of which:  
Personal consumption 2.4 2.5 2.4 2.4 2.7 2.2 (2.1) 3.3 (3.1)  
Government consumption 0.3 0.9 0.9 -0.5 0.0 0.7 (0.8) 0.7 (0.5)  
Gross fixed capital formation 0.8 4.5 6.8 7.5 7.9 5.4 (3.8) 7.9 (7.8)  
Exports 10.8 8.5 6.8 6.0 5.9 8.3 (7.4) 6.6 (6.7)  
Imports 4.6 6.6 7.3 7.5 7.7 5.4 (5.5) 8.3 (8.6)  
Memo items:  
Current account as % of GDP   -3.2% (-3.3%) -3.8% (-3.9%)  
Registered unemployment as % of labour supply 17.8 17.9 18.0 18.2 17.3 18.0 (18.3) 17.4 (17.8)  
Budget deficit as % of GDP (excluding privatization)   -4.7% (-4.7%) -5.2% -5.1%  
NOTE: Growth rates presented measure GDP growth in quarters in relation to corresponding figures noted year ago. The column Q1-Q4 is an estimate for a calendar year; previous estimate in brackets.
Source: NOBE Independent Center for Economic Studies



  2003 2004
  Q1 Q2 Q3 Q4 Q1 Q2
12 months CPI inflation 0.6 0.8 1.6 2.7 (3.1) 2,8 2.9
12 months PPI inflation 3.6 2.1 2.0 1.9 (3.2) 1.5 1.7
Memo items:  
Zloty/US$ exchange rate (eop) 4.00 3.79 3.80 3.78 (3.97) 3.80 3.83
Zloty/Euro exchange rate (eop) 4.32 4.43 4.39 4.35 (4.28) 4.37 4.40
Lombard rate 7.75 6.75 6.50 6.50 (7.00) 4.50 4.50
NOTE: Figures for end of period; previous estimate in brackets.
Source: NOBE Independent Center for Economic Studies