Macroeconomic environment
The year 2021 was a period when economies were rebuilding after pandemic shock of 2020 and adapting to situation of epidemic as supported by progress in vaccination programme against SARS-CoV-2. The Poland’s GDP already in mid-2021 made up for COVID-19 pandemic related losses and in 2H21 dynamic economic recovery continued. Household consumption was the main factor responsible for GDP growth, increasing by 6.2% after drop by 3.0% in 2020. Its recovery was supported by expansionary fiscal and monetary policy, low unemployment rate, fast wage increase and savings accumulated in the period of severe restrictions. Reconstruction of inventories by enterprises had a strong impact upon the GDP growth, specifically in 2H20, in response to problems with supply of materials and intermediate production goods under conditions of a strong, synchronised demand growth worldwide. Despite those difficulties, the industrial sector supported by exports largely contributed into recovery of the Polish economy in 2021. Furthermore, investments in fixed assets increased in 2021, although had not reached the level of 2019, the year prior to the outbreak of the pandemic, mainly due to limited activity of the public sector. This was an effect of the initial phase of the new European Union budget perspective. With recovery of inventories, the foreign trade balance generated a strong negative impact upon the GDP growth. Finally, in 2021 GDP calculated in constant prices increased by 5.7% after decrease by 2.5% a year before and was higher by 3.0% than 2019 level, thereby distinguishing Poland in a positive way from among the EU member states.
F-forecast, E-estimate
Growing demand was a factor driving increase in prices worldwide. Furthermore, in Poland, with low unemployment and favourable income situation of households, enterprises were able to transfer some increase of business operation costs upon consumers thereby strongly increasing inflation. In 2021 inflation rate, on average, increased to 5.1% y/y from 3.4% y/y in preceding year, while in Dec’21 alone it reached 8.6% y/y, the highest value in the last 20 years. In view of high demand for work, fast economic growth, high inflation and its unfavourable outlook, the Monetary Policy Council, in 4Q21 increased interest rates of the National Bank of Poland. Reference rate, from historical low at 0.10% in Sep’21 increased to 1.75% at the end of 2021. Tightening of monetary policy is continued in 2022.
F-forecast
Fast economic growth and high inflation supported significant growth of deposits in the banking sector in 2021. For households it reached 6.7% y/y, and for non-financial enterprises it reached 10.4% y/y. In the environment of record low interest rate, the banking sector lending activity increased. In 2021 the total value of newly granted housing loans for households increased by 49.0% compared to the level in 2020, and that of consumer loans – by 26.7%. Recovery was also clearly noted in corporate loans albeit it was limited to overdrafts. With very good results of companies, the demand for investment loans remained subdued. In 4Q21, together with increasing interest rates, demand for loans in the household segment slightly decreased.
Available data indicate that GDP growth in 4Q21 slowed down to ca. 1.0% q/q from 2.3% q/q in 3Q21 (seasonally adjusted data), mainly in effect of slowdown, under conditions of high inflation and interest rate increases, earlier pent-up consumer demand as well as supply limitations in industry. According to the Bank, Polish economy in 2022 will remain on growth path, although high inflation, extended tensions in supply chain, tightening of monetary policy as well as delays in acceptance of the National Recovery Plan by the European Commission will slow GDP growth down to 4.5%. The deceleration should be limited by consumption-oriented changes in the “Polish Deal” programme after proper structuring of its implementation. In the Bank’s view, unemployment will continue to decrease albeit at a slower pace due to insufficient number of candidates for jobs having desired qualifications. International trade, despite the favourable export perspectives, will most probably contribute negatively to GDP growth due to imports growing stronger.
The inflation 2022 outlook remains unfavourable. The Government’s anti-inflation shields i.e. a set of tax changes including, i.a. temporary decrease of VAT rates on electrical energy, gas and fuels will reduce only the peak of CPI in 2022 but will increase price growth rate after those solutions expire. Labour market will support strong and continuing pressure on wages. In this environment, according to the Bank, average annual CPI inflation in 2022 will increase to 7.3% y/y, and monetary policy will continue to be tightened. In the baseline scenario of the Bank, the NBP reference rate will increase at the end of 2022 to 4.00%, however the slowdown of economic growth expected in 2H22 will restrict higher scale of increases. The course of the pandemic remains a factor of uncertainty for these expectations, but the data so far point to an increasing resilience of the economy to successive waves of disease and their lower impact on social mobility. Consumer reaction to high inflation and accompanying increases of interest rates are becoming more and more important risk factors.