Macroeconomic environment

The household consumption was the main economic growth driver in 2019; this growth slowed down only slightly relative to 2018. This situation was supported by good sentiment among consumers connected with the record low unemployment rate and expansion of the 500 plus programme as well as reduction of income taxes in 2 half of the year. The above factors to large extent netted off the impact of declining dynamics of real wages. In the 1 half 2019, investments significantly supported economic growth, largely driven by public sector outlays co-financed with European Union budget funding. The situation, however, changed in 2 half of the year and current data on construction output indicate drops in annual terms in infrastructural investment. Economic growth in 2019 was also supported by balance of trade turnover with foreign countries; it is even better news since taking account of global economic slowdown resulting from, inter alia, protectionist trade policies and uncertainties related to global business activity.

Impact of the economic environment upon the national economy was largely compensated by consumer demand supported by labour market situation. In Q3 2019, unemployment rate, according to the Labour Force Survey, decreased to 3.1% i.e. the lowest historical value. Additionally, according to the Bank’s estimates, wage growth in 2019 was similar to the level recorded in 2018. Economic growth slowdown contributed to weaker demand for labour and this, together with supply constraints in certain sectors due to low unemployment, triggered only slight increase in the number of people employed. Furthermore, negative trend in declining number of economically active persons continued due to the process of population aging – outflows from the labour market are not sufficiently netted off by young workers entering their professional careers.

Solid growth of nominal wages under conditions of slowdown of economic growth in 2019 drove CPI inflation, which, on average throughout the year, reached 2.3% y/y against 1.6% y/y a year before. What is more, in December, the CPI inflation reached 3.4% y/y i.e. the highest level since October 2012. Costs of labour and electrical energy contributed, in particular, to inflation of service prices, which at the end of the last year reached 6.1% y/y. Entrepreneurs, under conditions of robust consumption demand, could transfer certain costs upon customers to improve financial results after 2018 which was worse for companies’ financial results. CPI inflation was additionally driven up by supply factors connected with rapid increase of prices of vegetables and also meat as a result of strong demand from China suffering from spreading ASF.

Under conditions of weakening economic growth and CPI inflation remaining within the range of permissible deviations from target level (2.5% y/y +/- 1.0%) the Monetary Policy Council decided to maintain rates at the existing levels. Despite the forecast of consumer inflation increasing in Q1 2020 closer to the level of 4.0% y/y, this policy, according to the Bank’s expectations, will not change also in 2020.

Economic growth slowdown observed in IIH of the year will continue through 2020. Household consumption will continue to be the main GDP pillar, although its increases will be more and more restricted. Growth in incomes from work will be slowing down and transfers under social programmes generate progressively lower demand stimulus. In addition, inflation higher than in 2019 will reduce purchasing power of disposable incomes. Investment outlook for 2020 is more and more pessimistic. Investment activity of public sector will be lower than the last year. Furthermore, private investments are highly unlikely to accelerate under conditions of economic growth slowdown and production capacity decline. Low investment demand will have a hampering impact upon imports; foreign trade balance should, therefore, positively contribute to GDP growth despite expected economic slowdown abroad.