Washington, DC: The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with the Republic of Poland.
Economic growth is estimated to have accelerated in 2024 to 2.8 percent, driven by a rebound in domestic demand, mainly from private consumption rising due to strong nominal wage growth and lower inflation. This is partially offset by net exports becoming a drag on growth as higher imports from increased consumption outpace exports hindered by weak Euro Area demand. The outlook is positive, further supported by expected absorption of Next Generation EU (NGEU) funds, with growth projected at around 3.5 percent in 2025 and 2026. Over the medium-term, as the impact of NGEU funds absorption unwinds, growth is expected to moderate to slightly below 3 percent largely due to population ageing.
The fiscal deficit is estimated to have widened to 5.9 percent of GDP in 2024 amidst a moderately expansionary fiscal stance (0.3 percent of GDP) as permanent increases in public sector wages and social benefits outweighed savings from the lower cost of energy support measures. The deficit is expected to remain elevated in 2025 at 5.6 percent of GDP, in part due to high defense spending. The authorities have announced fiscal consolidation over the medium-term aiming for a deficit of 2.9 percent of GDP by 2028. That said, some of the consolidation measures remain to be identified. Staff projects, based on measures identified so far, that the deficit will decline to 3.5 percent of GDP over the medium-term with public debt stabilizing around 65 percent of GDP.
Inflation has declined considerably from 2023 but remains well above the central bank inflation target despite the tight policy stance. Core inflation remains elevated in the context of strong wages growth amid a still-tight labor market. Absent surprises, both core and headline inflation should peak before mid-2025, then moderate to around the upper end of the target range of 2.5±1 percent by end-2025.The financial system remains resilient and private credit is recovering slowly. Capital and liquidity buffers remain well above regulatory requirements, while asset quality has improved. Bank profits increased due to wider net interest margins with high liquidity keeping deposit rates subdued. Private sector credit has recovered somewhat since bottoming out in mid-2023, partly due to a subsidized mortgage scheme.
Executive Board Assessment [2]
Executive Directors agreed with the thrust of the staff appraisal. They commended
the Polish authorities' prudent policies that have resulted in impressive economic and social gains and accelerated absorption of New Generation EU funds. While welcoming the ongoing recovery and the positive near-term outlook, Directors noted that risks are tilted to the downside and inflation remains elevated, given a tight labor market and strong wage growth. Directors highlighted the need to rebalance the policy mix to help rebuild buffers, strengthen resilience, and support private investment-led growth. Structural reforms to boost productivity and tackle longer-term challenges from ageing and the climate transition are also important.
Directors agreed that fiscal policy should increasingly focus on rebuilding buffers and supporting disinflation efforts as the recovery becomes more entrenched. While welcoming the Medium-Term Fiscal Structural Plan, Directors emphasized the need to identify the necessary fiscal measures upfront to strengthen its credibility. They saw merit in efforts to mobilize revenues, improve the targeting of social benefits, and reform the pension system. Directors generally agreed that frontloading more of the planned medium-term deficit reduction to 2025, would help to reduce debt, enhance resilience, and create leeway for a faster decrease in interest rates. Noting the need to further enhance fiscal transparency and governance, Directors welcomed the plans to establish a fiscal council.
Directors emphasized the importance of maintaining a tight monetary policy stance to ensure inflation converges to target. In this context, they agreed that interest rate cuts should commence only when wage growth is decelerating, and inflation is firmly declining towards the target.
Directors welcomed the soundness of the financial system supported by tightened regulatory policies in recent years. Noting the ample capital and liquidity buffers, Directors highlighted that further regulatory policy tightening should consider the impact on the nascent credit recovery. Directors called for efforts to proactively reduce legal risks to financial sector stability and remove distortions affecting private credit. In that context, they welcomed the elimination of the mortgage credit holidays.
Directors underscored the importance of comprehensive structural reforms to foster sustainable growth. Policies should focus on capital deepening, facilitating resource reallocation, nurturing innovation capacity, and decarbonizing the economy to meet EU targets for 2030. Noting the need to ensure adequate labor supply, Directors encouraged policies to support the integration of women, old age adults, and refugees into the labor market. Directors recognized the progress on reducing emissions and encouraged further actions to meet climate goals and safeguard competitiveness.
Table 1. Republic of Poland: Selected Economic Indicators, 2022–29 |
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2022 |
2023 |
2024 |
2025 |
2026 |
2027 |
2028 |
2029 |
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Projections |
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Activity and prices |
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GDP (change in percent) 1/ |
5.3 |
0.1 |
2.8 |
3.5 |
3.3 |
3.1 |
2.8 |
2.7 |
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Output gap (percent of potential GDP) |
2.3 |
-0.9 |
-1.0 |
-0.4 |
-0.2 |
0.0 |
0.0 |
0.0 |
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Headline CPI inflation (percent) |
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Average |
14.4 |
11.4 |
3.8 |
4.6 |
3.5 |
2.9 |
2.5 |
2.5 |
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End of period |
16.6 |
6.2 |
5.1 |
3.7 |
3.3 |
2.5 |
2.5 |
2.5 |
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Unemployment rate (average, according to LFS) |
2.9 |
2.8 |
2.9 |
3.1 |
3.2 |
3.2 |
3.4 |
3.5 |
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Public finances (percent of GDP) 2/ |
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General government net lending/borrowing |
-3.4 |
-5.3 |
-5.9 |
-5.6 |
-4.9 |
-4.1 |
-3.6 |
-3.5 |
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General government cyclically-adjusted balance |
-4.6 |
-4.8 |
-5.4 |
-5.4 |
-4.8 |
-4.1 |
-3.7 |
-3.4 |
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General government primary balance |
-3.1 |
-2.7 |
-3.0 |
-2.9 |
-2.2 |
-1.5 |
-1.1 |
-0.9 |
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General government debt |
48.8 |
49.7 |
54.1 |
57.8 |
61.3 |
62.5 |
63.2 |
63.8 |
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Balance of payments |
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Current account balance (percent of GDP) |
-2.3 |
1.8 |
0.3 |
-0.3 |
-0.7 |
-0.9 |
-1.2 |
-1.5 |
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Total external debt (percent of GDP) |
53.2 |
48.8 |
45.1 |
43.9 |
42.9 |
41.9 |
41.0 |
40.1 |
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Memorandum item: |
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Nominal GDP (billion zloty) |
3100.8 |
3401.6 |
3601.6 |
3898.7 |
4169.8 |
4409.6 |
4646.5 |
4889.1 |
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Sources: Polish authorities; and IMF staff calculations. |
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1/ Real GDP according to 2020 base year. |
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2/ According to ESA2010. |
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[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm .