WARSAW, April 6, 2023 – Economic activity in Poland is expected to slow significantly this year due to high inflation, tighter monetary policy, the continued fallout from Russia’s invasion of Ukraine and slowing demand in major markets. trading partners, according to the World Bank. Economic update for Europe and Central Asia region, released today.
Poland’s economic growth is expected to decelerate to 0.7% in 2023, compared to 4.9% last year. In 2024, the country’s growth is expected to strengthen to 2.6%, mainly due to a recovery in private consumption and investment and an increase in public spending.
High energy and food prices will continue to weigh on household demand in 2023 and will heavily affect the poorest segments, who spend 50% of their monthly spending on food and energy. The share of the population at risk of entrenched poverty is expected to remain high, 1 to 2% above 2019 levels.
The outlook in Europe and Central Asia remains very uncertain. Growth in 2023 could be weaker if the war sparked by Russia’s invasion of Ukraine further intensifies, if food and energy prices continue to rise, if interest rate increases interest accelerates globally or in the region, or if capital flows to the region suddenly reverse. Recent banking developments in some advanced economies could have spillover effects on growth.
Ukraine’s economy is expected to grow 0.5% this year, following a staggering 29.2% contraction in 2022, the year of Russia’s invasion of the country. Although the economic toll suffered by Ukraine as a result of the invasion is enormous, the reopening of Ukraine’s Black Sea ports and the resumption of grain trade, along with substantial donor support, are helping to sustain the economic activity this year. According to recent World Bank estimates, the cost of Ukraine’s reconstruction and recovery now stands at $411 billion, more than double the size of Ukraine’s pre-war economy in 2021 .
Turkey experienced two devastating earthquakes on February 6, 2023, which caused direct damage of approximately $34.2 billion, or 4% of the country’s GDP in 2021, according to World Bank estimates. The actual costs of meeting all recovery and reconstruction needs could be double the direct damage. Including the impact of recent earthquakes, growth is expected to reach 3.2% in 2023, reaching an average of 4.2% over the period 2024-25, supported by government support for households and investments in as part of ongoing reconstruction efforts.
Against a backdrop of slow growth and high inflation, the report includes a special chapter on the cost of living crisis, which examines the impact of high inflation on the living standards of people in the region.
“Inflation erodes people’s real incomes – and high inflation affects the poorest far more than the richest segments of the population. » said Ivailo Izvorski, World Bank Chief Economist for Europe and Central Asia region. “To better protect vulnerable groups and promote economic growth, policies should take into account the different impacts of inflation at different income levels and use more precise indicators to measure the real cost of high prices for the poorest . »
Governments across the region have responded to the cost of living crisis with welfare support and subsidies, the latter involving moratoriums on energy price increases, reductions in public transport fares and capping of prices of electricity and natural gas for households and businesses.
The report’s analysis, however, reveals the unequal burden of the cost of living crisis. It appears that inflation was 2 percentage points higher for the poorest 10% of the population than for the richest 10%. This difference exceeded 5 percentage points in some countries in the region, notably Moldova, Montenegro and North Macedonia.
Policies that do not take into account the different inflation rates faced by households are likely to provide inadequate support to vulnerable groups and could end up being both ineffective and less effective, the report notes. It recommends going beyond the standard Consumer Price Index (CPI) to measure inflation to more accurately capture the real cost of living for the poorest. This is essential for designing better growth and poverty reduction policies.