Polish Economy to Slow Slightly, Fiscal Deficit to Grow, Says World Bank | WPN World People News

Poland’s economic growth rate is projected to slow to 4.0% in 2019, down from over 5.0% in 2018, according to the World Bank’s latest Economic Update for Europe and Central Asia, released on April 4th.

Poland’s growth rate, which is robust compared to other European economies, will be driven by strong domestic consumption and accelerating investments, supported by low interest rates and the availability of European Union funds. On the other hand, the growth dynamics of Poland’s economy will be hindered by a slowing global economy, most importantly in the euro zone, as well as domestic labor shortages.

A proposed expansion in fiscal expenditures for social programs may accelerate economic growth in Poland in the short run – however, it would most likely lead to a widening of the budget deficit, which is already projected to increase to 1.4% of GDP in 2019, compared to 0.5% last year, and further to 1.6% in 2020.

“The Polish economy is still growing at a rate significantly above the EU average. The low unemployment rate and strong wage growth are still driving private consumption; investments, both public and private, are growing too. In 2018, the fiscal budget was close to a balance. We do expect, however, that Poland’s fiscal situation may deteriorate soon,” says Carlos Piñerúa, World Bank Country Manager for Poland and the Baltic States. “One characteristic of new social expenditure initiatives is that they tend to be irreversible in nature, for political reasons among others. That is why we are concerned that, given the growth rate slowdown, a deterioration in the fiscal and external accounts may eventually limit the country’s ability to react flexibly to emerging challenges, such as a more acute than expected global economic downturn, for example.”

The World Bank estimates that Poland’s GDP growth in 2020 will amount to 3.6%, and will slow to 3.3% in 2021. Forecasts for 2019, as well as for the period 2020-21, are the same as those released earlier, in January this year.

The expected slowdown in Poland would result from a gradual economic downturn worldwide, but more importantly in the euro zone, Poland’s biggest trade partner. The World Bank projects economic growth in the euro zone to slow to 1.6% in 2019, down from 1.8% last year, and in 2020-21 to only average 1.4%.

“The Europe and Central Asia region faces several long-term challenges including aging populations, declining productivity, weakening investments, and climate change. The good news is there are a range of policy options available to boost growth and mitigate these challenges,” says Cyril Muller, World Bank Vice-President for Europe and Central Asia. “Countries should close investment gaps, improve governance, participate more in global value chains, and ensure more people have access to financial services including bank accounts and digital payments.”

The World Bank report indicates that, in many countries of the Europe and Central Asia region, low availability of banking services is a significant barrier to economic development. In 2017, about 116 million adults in the region had no bank account. Owning a bank account is the first step to taking advantage of the full range of banking services, such as deposits or loans, which stimulate economic development. In Poland, as much as 87% of the populations own bank accounts, which is higher than the average for the entire region.

Source: World Bank