In 2018, the rapid GDP growth in Poland should be continued with maintenance of a robust consumption and a significantly higher rate of growth in investment vis-à-vis 2017. At the turn of 2017 and 2018, projections of economic growth in the euro area were revised upwards. This also improved GDP projections for the Polish economy, even to a level significantly above 4%.
Growth in individual consumption is likely to surpass 4% in 2018. In an environment where demand has an upper hand over supply on the labor market, wages should grow more rapidly. However, manufacturers of goods and providers of services sold internationally may find it difficult to increase wages significantly without compromising their competitiveness. Part of the reason for this is that the inflation rate in major trading partners remains relatively low.
As the infrastructural projects co-funded by the EU move to the execution stage, investments will be clearly on the increase. At the end of 2017, corporate investments also started to grow more noticeably and this trend should continue well into 2018. However, their rate of growth may be under pressure due to problems with finding properly qualified staff.
The rate of growth in GDP in 2018 will again deviate significantly from the potential GDP growth rate (of just above 3%). However, there are currently no clear signs of imbalances in the economy. The average annual CPI in 2018 may still be below the NBP’s assumed inflation target (of 2.5%), with the upward trend in core inflation stronger than in 2017, reflecting the boost in wage growth and the rapid growth in demand. However, the subdued annual growth in food prices should dampen the rate of overall inflation in 2018. The overall CPI may oscillate significantly in 2018 due to the base effects on fuel and food prices, reaching approx. 2.5% y/y in the summer. Indications that a series of interest rate hikes may begin at the turn of 2018 and 2019 are supported by the situation on the labor market and by the widening pro-inflationary gap in demand as well as the upcoming commencement of a series of interest rate hikes in the euro area. However, the Monetary Policy Council indicated at the beginning of 2018 the high likelihood of maintaining the NBP rates at the current level for the rest of 2018. A possible temporary decrease in inflation at the end of next year may help the Monetary Policy Council make this decision.
Such macroeconomic developments should be conducive to higher sales of insurance products. At the same time, a number of risks to economic growth – which might also destabilize the financial markets – have weakened. In early 2018, GDP growth in the global economy is unexpectedly strong. The election results in major EU countries have not threatened the coherence of the European Union or the euro area. It also seems that the risk of a “hard Brexit” has subsided. On the other hand, the risk of a financial crisis in China still persists, followed by geopolitical threats such as the challenges around the North Korean nuclear program and U.S.-Iran relations.
Among the internal factors that may push down GDP growth in Poland, there are problems with hiring properly qualified staff, a possible prolongation of stagnation in private investment or a higher than expected increase in inflation eroding real household incomes. However, the likelihood of a major slowdown in GDP growth in 2018 is not high. Fiscal risk in 2018 also seems to be on the low side due to the continued robust GDP growth and the structure of this growth conducive to higher tax receipts.
The prospect of a higher inflation rate and the continuation of above-average economic growth (also around the Polish economy) should drive an increase in government bond yields, which in the long term will be beneficial to the PZU Group, although in the short term may adversely affect the net result on investing activity. The risk of volatility in equity prices has increased significantly. In addition to growing valuations and prospects of a dwindling GDP growth rate after 2018, this is also affected by the risk of a significant correction in the U.S. where the current recovery is already very mature. Despite the high likelihood, as declared by the Monetary Policy Council, that the current levels of interest rates will be maintained, the forecasting of the NBP’s monetary policy in 2018 is also a matter of uncertainty. The NBP’s inflation projection published in November 2017 points to a risk of stronger inflation after 2018.
|Data for the Polish economy
|Real GDP growth in % (y/y)
|Increase in individual consumption in % (y/y)
|Gross fixed capital formation in % (y/y)
|Increase in prices of consumer goods and services in % (y/y, end of period)
|Nominal wage growth in national economy in % (y/y)
|Unemployment rate in % (end of period)
|NBP base rate in % (end of period)
Source: Macroeconomic Analysis Office PZU
* Estimate as of 2nd March 2018