Gross Domestic Product
According to preliminary estimates of the Central Statistical Office, in 2017 GDP increased by 4.6% in real terms, which was the strongest growth since 2011. The main driver of economic growth was the 4.8% boost in household consumption, the strongest figures since 2008. Consumption growth was supported by increasing employment, a decline in unemployment and an increase in real income. Investments in fixed assets increased by 5.2% after falling by 7.9% in 2016. Nevertheless, a strong double-digit investment growth rate was recorded only in the last quarter of 2017, when, apart from public investments co-funded by the EU, it was most likely enterprise investments that started to grow more noticeably. The unexpectedly good economic situation in the global economy, especially in the euro area, supported growth of Polish exports and Poland’s economic growth. Due to the dynamic growth of domestic demand, providing a strong driver of imports the impact of net exports on GDP growth was slightly negative in 2017. On the other hand, GDP growth in 2017 was supported by the accumulation of inventories.
Decomposition of GDP growth in 2013 - 2017
Source: Central Statistical Office, preliminary estimate of GDP in the fourthquarter of 2017
Labor market and consumption
In 2017 the circumstances on the labor market improved very markedly from an employee point of view. Employment was on the rise and the unemployment rate fell. At the same time, companies experienced greater difficulties with filling vacancies and the salary growth strongly accelerated.
The most readily available information about the labor market comes from the business sector. In 2017, average headcount grew by 257 thousand people, as compared to an increase of 158 thousand in 2016. In December 2017, average monthly headcount in businesses was 4.6% higher than one year before. According to BAEL statistics based on yet incomplete data,the increase in the number of persons employed was, less spectacular according to our estimates amounted to 1.4% y/y in 2017. In the environment of limited supply of labor, businesses most likely sought to stabilize contracts with the personnel previously collaborating on a more flexible basis.
The inflow of foreign workers also contributed to employment growth.
Employment growth, demographic trends resulting in a decrease in the number of people in working age and a reduction of retirement age resulted in a rapid decline in the unemployment rate. The registered unemployment rate in December 2017 was 6.6% compared to 8.2% in December 2016.
Under these conditions, an upward trend in salaries in the Polish economy was already clearly visible in 2017. The average monthly salary in the enterprise sector increased from 2016 to 2017 by 5.9% compared to a 3.8% increase in 2016. The average monthly salary in the economy increased by 5.4% in 2017, compared to 3.7% in the previous year. Despite an increase in inflation, this also allowed for a solid real increase in average salary in the economy (3.4%), even though it was slightly lower than in 2016 (4.3%). Employment growth resulted in a strong expansion of the payroll budget in the corporate sector. In December 2017 it was 12.2% higher than in the previous year.
A solid increase in real income in 2017 allowed for a fairly equal and relatively high growth rate of household consumption (4.8% y/y). It was assumed that the impact of transfers made under the “Family 500+” program on the annual consumption growth would expire roughly in mid-2017. However, many households started to increase their goods and services purchases with some delay compared to the moment when the benefits were launched. Additionally, record high consumer confidence indicators were recorded in 2017, including increasing job and income security. At the same time, there was a clear increase in income mainly in the lowest earning groups, where the consumption growth effect was relatively the most pronounced.
1 BAEL (Population Economic Activity Survey) is a survey of situation on the labor market conducted by the Central Statistical Office on a quarterly basis.
Inflation, monetary policy and interest rates
In 2017, the consumer price index (CPI) increased on average by 2.0% after a three-year deflation period, compared with -0.6% in 2016. In December 2017 consumption prices were 2.1% higher than in the previous year. Top contributors to the 2017 inflation growth included: increasing food prices (4.6%), housing prices (up by 1.6%) and transportation prices (3.8%). In such a situation, the net inflation rate (CPI net of food and energy prices) rose in 2017 much more slowly than the general consumer price index – by an average annual rate of 0.7%, compared to a decline by 0.2% one year before, pointing to a moderate increase in inflationary pressure. The negative demand gap was only closed in 2017 and inflation was also suppressed by weak price increases abroad.
In 2017 and in January and February 2018, the Monetary Policy Council decided not to change interest rates. They remained flat at the level set in March 2015 – the reference interest rate was 1.5%. According to the Monetary Policy Council, the current level of interest rates is still conducive to keeping the Polish economy on a sustainable growth path and helps it preserve macroeconomic balance.
According to the Ministry of Finance estimates, the state budget deficit in 2017 was PLN 25.4 billion, which is much lower than the PLN 59.3 billion planned. The Ministry of Finance estimates on a preliminary basis that at the end of 2017 the ratio of the general government sector debt to GDP fell by more than 2 percentage points compared to the end of 2016 and is roughly 52%, compared to 54.1% of GDP a year earlier. In 2017 Poland had no problems whatsoever in obtaining market financing – 27% of its borrowing needs planned for 2018 had been pre-financed at yearend.