The economy has entered a phase of cyclical acceleration. The output gap is closed and inflation is gradually picking up though from a low level. Unemployment has reached a historic low, thanks to growth-driven job creation and the still large supply of posted workers to other countries in the EU. Real wage growth exceeds productivity growth. The fiscal stance is pro-cyclical, with increases in spending stimulating the already buoyant domestic demand. EU fund inflows are expected to accelerate in 2017, boosting economic growth and investment further.
Despite a slight deceleration, Polish growth remained above the EU average in 2016, at 2.7% y-o-y. Growth accelerated to 4% y-o-y in Q1-2017, driven by still buoyant consumption and the recovery in investment. The slow start of the 2014-2020 EU budget cycle explains the GDP growth slowdown in 2016 after an acceleration in 2015 due to the record transfers of the remainder of the sums available under the 2007-2013 envelop. Structural funds’ inflows are expected to accelerate in 2017, further boosting growth and investment. The output gap has closed; the tightening in labor market conditions as well as the record capacity utilization rates that reached their peak of 2008 show that Poland has entered the phase of cyclical expansion.
■ Inflation : synchronization with the Eurozone
After a period of deflation in 2015-16, largely in response to the fall in global energy prices, headline inflation is back in positive territory in 2017 (Chart 2). The HICP was up 1.7% y-o-y in average in the first five months of the year. The increases in food and fuel prices were the main drivers of this acceleration. Despite robust nominal wage growth, overall demand-side pressures remain fairly modest, with core inflation still subdued (0.8% y-o-y in January-May 2017).
Inflation rate is now very closely following the average inflation in the euro zone and the correlation has strengthened since 2014 (Chart 2).
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by Anna DORBEC