Poland Economic Outlook 2021
The COVID-19 pandemic and containment initiatives are expected to decrease real GDP by 41⁄4per cent in 2020 until it increases again by about 4per cent in 2021. With the deterioration of consumer trust and the fall in the economy on the job market weighing down, private consumption is projected to decline dramatically by 2020. Private investment would presumably take a similar path, motivated by volatility and reduced aspirations of demand. Growth in public expenditure is projected to affect reduced public income and a rise in other expenditures. The public debt would be strongly raised by 2020 until it will grow in 2021. In 2019, economic growth was above 4%, owing, in particular, to good domestic demand results. Private consumption continued to rise strongly, backed by high consumer sentiment and a thriving labor market. Meanwhile, investment has played a major role in development as productivity levels have raised.
The pandemic of COVID-19 would end almost three decades in Poland with an unbroken rise. GDP will fall by approximately 4.5% in 2020 due to economic activity fluctuations triggered by lockout steps and an unexpected reduction of external demand. By 2021 a good rebound in household demand was set to bounce back down 4 percent of GDP. However, over the projected horizon, GDP is impossible to rebound to 2019. Although the government has introduced significant help acts, private consumption is forecasted to be hit hard by increasing unemployment, the steep decline in wage growth, and low customer trust. Investment is also expected to decline dramatically by 2020, as mountains of volatility and reduced market aspirations are likely to influence businesses’ investment plans.
Meanwhile, reduced income and rises in other pieces of spending may impact public investments. A decrease in both imports and exports is projected by 2020 in the market from Poland’s principal trade partners and foreign trading disturbances. However, the trade balance is expected to stay largely unchanged for 2020 due to the composition of Polish exports and improved price competition. Exports are predicted to increase in 2021 with the revival of external demand, improving the trade balance.
It is also predicted that the volume of expenditure would decrease significantly by 2020, with Uncertainty Mountains and decreased expectations on the economy likely to impact company investment plans. While this will influence public expenditure, decreased profits, and increased expenditure on other products. The economy of Poland’s main trading partners and international trade unrest is predicted to decrease both imports and exports by 2020 (Robertico Croes, 2021). However, because of Polish exports and the intensified price competitiveness, the trade balance is projected to remain relatively unaffected for 2020. Exports are expected to rise by 2021 as global demand revives, and the trade balance strengthens (Andersson, 2009).
In recent years the public deficit has been deepening due to a decision to cut the retirement age and increase payments to seniors and households with children. This development accelerates with the COVID-19 crisis: in the year 2020, a budgetary deficit of 3.7% of GDP was projected by the IMF, with tax collections dropping and expenses increasing duty-bound (which accounted to approximately 5.25 percent of GDP according to the European Commission). The budget deficit is predicted to steadily decrease to –2.9% and –2.4%, respectively, by 2021 and 2022, as the situation stabilizes (IMF). While comparatively thin, in 2020, the debt-to-GDP ratio rose to 60% (from 46% one year earlier) and is projected to continue to rise by that amount in 2021-22. The decline in oil prices was compensated by higher rates of food and services, which took the inflation rate to 3.3 percent (from 2.3 percent one year earlier). Inflation is projected to decline slightly in 2021 (2.3%) and 2022, as governmental actions ease and lead to a deterioration in labor and modest food costs (1.9 percent – IMF). Poland has several advantages in general; its European Institutional Funds services are easily used; its financial sector, high internal market, and geographical role between Eastern and Western Europe are robust (and Russia). Thus far, Poland has confronted numerous structural problems, including strict labor law, insufficient road and rail networks, poor trade courts, and a strong fiscal policy.
The unemployment rate was structurally poor (only over 3 percent); while the temporary contracts were double those of over one in four workers. The long-term consequences of the COVID-19 crisis are likely to aggravate. However: although government assistance programs have helped contain the unemployment rate (3.8% in 2020), the IMF predicts that this year would be 5.1% higher and 4.9% more in 2022. This is expected to continue. According to the latest Eurostat statistics, the GDP per capita (PPP) of Polish people is still 27 percent below that of the EU-27. Finally, the East and the West of the world also vary significantly.
The World Bank reports that in 2019 the value-added of the automotive sector was 17 percent of Polish GDP (latest data available). Machinery, telecommunications, the environment, shipping, building, industrial food processing, and IT are the country’s major industrial sectors. Certain conventional sectors, such as the steel and marine industries, have deteriorated. The Poland automotive industry primarily focuses on exports and has been strongly immune to the impact of the 2008 financial crisis (Szeidl, 2018). However, the coronavirus domestic market has been hardest affected. The Central Statistical Bureau claims that the annual output of passenger cars has decreased by 99 percent after the pandemic’s first wave. Industrial overall outputs recovered a small bit in the fall of 2020, albeit still below the norm of 2019, risking being hindered by the second disease wave: +3 percent in September, +1.6 percent in October +5.4 percent in November.
The tertiary business accounts for 57.6% of GDP and hires about 59% of the labor force. In recent years the sector has boomed, especially for financial services, logistics, informatics, and tourism. The number of tourists entering the nation surpassed the total of 21.4 million visitors in 2019. This one, in particular, has seen a significant rise. Nonetheless, the effect of the COVID-19 outbreak was severe: in the first half of 2020, according to the Central Statistical Office statistics, 7.3 million tourists had earned a total of 19.4 million overnight stays in tourist residences, which had decreased by 54.3 and 51.5 for a year in advance compared with the same duration a year earlier. In general, because of social distance constraints, which pounded most resources, the Tertiary sector was most affected by the pandemic.
Lock-down policies and declining demand are projected to impact the working economy, taking unemployment to about 7 1⁄2 percent in 2020. The pattern in wages observed in the last few years, particularly in the services sector, would probably suddenly change back (Bozena Gajdzik, 2021). The fall in pay growth must nevertheless be largely accounted for by already agreed rises in public salaries. While workers will rebound considerably in 2021; incomes are projected to remain modest.
Dynamics of price to be lowered
HICP inflation grew to 2.1% in 2019, forecasts that it hit a height of almost 4% in the first quarter of 2020 owing to higher food- and utility costs. From the second quarter onward, inflation is expected to shrink markedly, with energy prices declining, dropping consumption, and a rapid decline in wage development. In general, inflation will moderate to 2.5% in 2020 and accelerate to 2.8% in 2021, as the economy improves.
Projection threats are downside-drawn. The rebound would rely largely on the success of public policy and how the impacts of the shock on the job market are changed. Foremost, the epidemic may have a long-term effect on some markets over and beyond global downside threats in specific facilities, which may minimize the potential for recovery (Marcin Wołek, 2021).
Poland has adopted investment strategies in recent years that are impossible to undo. The general government deficit is expected to rise to 9 1⁄2 percent of GDP by 2020. In 2021 the deficit is expected to improve to about 33⁄4 percent of GDP under the presumption of no policy adjustment, powered by global growth and the expiration of significant economic support spending. A change in the job market situation and expanded demand could push higher wages in tax and social contributions. This forecast involves measures signed into law and defined adequately in-depth at the deadline. In the meantime, state guarantees and loans that may be named or not redemption in the future include challenges to this prediction. The debt to GDP ratio of government would worsen dramatically in 2020–21 to about 581⁄2 percent because of deficit and nominal developments in the GDP sector.
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