Squeezed by the reduction in European transfers, investment growth is slowing. Consumption, in contrast, is holding up well, bolstered by public spending, which is paving the way for a soft landing. Solid exports have brought the current account into positive territory for the first time in 20 years. The increase in public spending has not fuelled inflation. The government has launched a family allowance programme as part of efforts to boost the birth rate, expecting to lift the country’s long-term growth potential. The cost of these policies will be covered by higher taxes on banks, large retailers and state-owned energy companies. There is also a big temptation to increase debt in the current environment of very low interest rates.
- Switching growth engines
Economic growth is showing signs of slowing down after peaking at 4% year-on-year in Q4 2015 (bringing the full-year 2015 average to 3.6%). In the first six months of 2016, real GDP growth slowed to 2.8% year on year (y/y).
Consumption growth continued to rise, up 2.7% y/y in H1 2016. Retail sales growth hit a record high, up 5.6% at an annualised rate in the first 8 months of the year. This trend follows closely the acceleration in real wages, up 5.4% y/y in the first 6 months of the year, thanks to the double impact of labour market improvement and lower prices. The unemployment rate dropped to 5.6% of the active population in August 2016, the lowest level ever reported in post- Soviet Poland.
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by Anna DORBEC