Gross Domestic Product
According to preliminary estimates of the Central Statistical Office, in 2018 GDP increased 5.1% in real terms, which was the strongest growth since 2007. Household consumption, up 4.6% from 2017, remained the main driver of the country’s GDP growth. This persistently robust consumption growth was supported by higher employment, a decline in the rate of unemployment and higher real income. Investments in fixed assets were a major contributor to the strong economic growth. The growth rate of investments in 2018 accelerated to 7.3% from 3.9% the year before, also owing to public investment projects co-funded by the European Union. The GDP growth rate was also driven by rising inventories. On the other hand, the deteriorated condition of German industries and the slowdown in economic growth in the euro area suppressed the growth rate of Polish exports, whereas imports remained high due to strong domestic demand. The contribution of net exports to the GDP growth rate was negative (-0.2 p.p.).
Decomposition of GDP growth in 2015-2018
Source: Central Statistical Office, preliminary estimate of GDP in 2018 as at 28 February 2019.
Labor market and consumption
In 2018 the labor market conditions continued to improve from an employee point of view. Employment grew and the unemployment rate decreased, albeit slower than a year earlier. At the same time, companies reported difficulties filling vacancies and wages were on the rise at a relatively high rate.
The most readily available information about the labor market comes from the enterprise sector. In 2018, average paid employment grew by almost 168 thousand people, as compared to an increase by 266 thousand people in 2017. In December 2018, the average monthly employment in enterprises was 2.8% higher than the year before. The growth in employment, coupled with the declining working-age population, resulted in a lower unemployment rate. The registered unemployment rate in December 2018 was 5.8%, compared to 6.6% in December 2017. At the end of 2018, the seasonally adjusted rate of economic unemployment (according to Eurostat) stood at 3.5%, which was below the European Union average (6.6% in December 2018). This notwithstanding, the extent of the decline in the rate of unemployment in 2018 was smaller than in the four prior years.
In this situation, in 2018, the upward trend in average monthly wages in the Polish economy was 7.0%, compared to 5.7% in 2017. The average monthly salary in the business sector increased between yearend 2017 and yearend 2018 by 7.1% compared to a 5.9% increase in 2017. With the inflation rate lower than in 2017, this also caused a higher real increase in the average wage. The robust growth in real income coupled with high consumer confidence indicators contributed to achieving a relatively high rate of growth in household consumption in 2018 (4.6%).
Inflation, monetary policy and interest rates
In 2018, the consumer price index (CPI) increased on average by 1.6% in annual average terms, compared to 2.0% in 2017. In December 2018, consumption prices were 1.1% higher than the year before and net core inflation (CPI without the prices of food and energy) declined to 0.6% y/y. With low core inflation in the euro area, the room for increases in the prices of commercial goods remained curbed. Moreover, the demand gap in Poland was closed relatively recently. Accordingly, the country is under no strong inflationary pressure at this point.
In 2018 and in January and February 2019, the Monetary Policy Board decided not to change interest rates. They remained flat at the level set in March 2015 – the reference interest rate was 1.5%. According to the Monetary Policy Council, the current level of interest rates is still conducive to keeping the Polish economy on a sustainable growth path and helps it preserve macroeconomic balance.
The Finance Ministry announced that the state budget deficit in 2018 was PLN 10.4 billion, which is much lower than the PLN 41.5 billion planned. This means that the state budget deficit was a mere 0.5% of GDP. The State Treasury debt at the end of December 2018 was PLN 954.2 billion, up PLN 25.8 billion (+2.8%) from the beginning of 2018. According to the European Commission’s forecasts in November 2018, the deficit of the general government sector in Poland in 2018 dropped to 0.9% of GDP. In 2018 Poland had no problems whatsoever in obtaining market financing – the Finance Ministry reported that over one-fourth of its borrowing needs planned for 2019 had been pre-financed at yearend.