Financial and
ESG report 2020

Macroeconomic environment

2020 was unique in the contemporary history of world economy. The COVID-19 pandemic as well as the fight against it caused great economic losses.

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According to estimates of the International Monetary Fund the world’s GDP shrunk by 4.3% in 2020, thus much more than during the 2009 global financial crisis. The size of economic impact caused by the pandemic was an impulse towards an unprecedented scale of monetary and fiscal policy easing in countries affected by the pandemic.  

Economic events in 2020 had earlier unseen dynamics. In particular, after the very fast rebound in 3Q20, the October-December period brought reduction of business activity in reaction to the COVID-19 pandemic escalation and restoration of social and business restrictions in many areas. In Eurozone gross domestic product in 4Q20 fell and the European Central Bank again relaxed monetary conditions. In the United States the economic effects of the pandemic in 4Q20 were smaller. Exacerbation of the pandemic did not slow down global trade recovery of industry, which was supported by economic growth in China, reaching 2.9% in the entire 2020. Meanwhile the US economy shrunk in total by 3.5%, and Eurozone by 6.8%. 

Also in Poland in 4Q20 the pandemic picked up strongly. In consequence since mid-October restrictions were reintroduced with respect to part of services sector. Meanwhile in November restrictions were extended for trade in shopping centres (temporarily lifted in December). These factors were conducive to the GDP decline in 4Q20 by 2.8% y/y against a drop of 1.5% y/y in 3Q20. Despite a stable labour market the pandemic hit consumption of services the hardest. Investments were also reduced, which is not surprise considering the uncertainty regarding business activity as well as the transition period between the old and new EU financial perspective. All in all, GDP in Poland shrunk in 2020 by 2.8%, most in its history. However this decrease turned out to be lower than expected in the spring of 2020 and lower than in other countries of the European Union. The extent of the changes was mitigated by the industrial sector as well as exports, which were supported by the global trade recovery, favourable exchange rate of the zloty as well as relatively strong – despite the pandemic – demand for consumer goods from abroad. The less painful economic activity decline results moreover from a lower share in the economy of sectors hit most heavily by restrictions and self-isolation of consumers, significant support from the public authorities: crisis shields and financial shield of Polish Development Fund as well as relaxing monetary stance by Monetary Policy Council. These programmes as well as lower scale of the recession compared with other countries, resulted in relatively mild increase in unemployment. The registered unemployment rate at end of 2020 was 6.2% and was only 1 pp higher than the year earlier, which makes Poland stand-out favourably among European Union member states.  

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Still relatively good situation on the labour market and limited scale of demand decline resulted in only slight drop of CPI inflation in Poland in 4Q20. During October-December it was on average 2.8% y/y against 3.0% y/y in 3Q. Inflation was fuelled mainly by growth of prices of services, which was sustained during the pandemic. This was happening because operating service providers were able to transfer costs of increased sanitary standards to consumers. In 4Q20 Monetary Policy Council did not modify interest rates and NBP continued (though on a low scale) the programme of repurchasing Treasury Bonds and securities guaranteed by the State Treasury. In December 2020 the National Bank of Poland intervened on the FX market and Monetary Policy Council emphasised the possibility of continuing this as well as the importance of a weak zloty exchange rate to support exports. In the Bank’s opinion the current parameters of monetary policy in Poland will be sustained in subsequent quarters as well as the possibility of NBP intervention on the FX market.  

In the conditions of stable labour market, restrictions as well as self-isolation of consumers, household deposits in 4Q20 grew stronger than a quarter earlier, which reflects an increase of the rate of savings. On the other hand deposits of non-financial companies did not grow significantly, which in the Bank’s opinion may be associated with extinguishing of support under the PFR financial shield. In case of newly granted consumer loans for households, as well as loans for non-financial businesses, slight improvement was seen in 4Q20, although they fell vs. the same quarter of 2019. Meanwhile the value of new housing loans in 4Q20 was significantly higher than the year before, which was supported by the still good situation on the labour market as well as limited interest in other ways of preserving the value of money.  

2021 should bring a significant improvement of business activity. Its scale will depend on the epidemic situation as well as pace of vaccinations against COVID-19. For this reason the expectations for 2021 involve increased uncertainty. The Bank’s baseline scenario assumes gradual receding of the pandemic from 2Q21. Start of the vaccination process gives hope for elimination of part of the uncertainty and avoidance of restoration of harsh restrictions, although reaching collective immunity, which offers a chance for return to normal, will take a few quarters. This means that some restrictions will stay in place also in 2021. Latest data however show that the Polish economy is becoming less and less susceptible to the adverse impact of further restrictions. The Bank’s expectations regarding improvement of the economic situation in 2021, with only slight decrease of demand for labour, are confirmed by an NBP survey of companies. Investment prospects still remain poor. Thus economic growth in Poland in 2021 will be supported according to the Bank expectations mainly by a rebound of consumer demand as well as export of consumer goods.  

In 2021 Poland’s economy will be operating in an environment of almost zero NBP interest rates. According to the Bank fiscal policy will also remain very easy, with budgetary deficit still running high. The subsequent increase of public debt will be burden for public finances in the long run, however at present it is not causing tensions on financial markets due to the quantitative easing programme launched by NBP. Such economic policy in an environment of rebound of economic growth as well as increases of regulated prices will support a relatively high rate of inflation. 

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