Macroeconomic factors which shaped the national economy in 2023 are presented below.
GDP on the brink of recession and recovery in the second half of the year
In the first half of the year, the national economy was on the brink of recession, with GDP declining year-on-year. The second half of the year saw an improvement, with GDP growth accelerating from -0.6% y/y in the second quarter to around 1% y/y in the fourth quarter of 2023. At the beginning of the year, consumption decreased as a result of a decline in the purchasing power of income in real terms caused by inflation of more than a dozen per cent. In the third quarter, the decline in inflation, combined with stable nominal income growth in an environment of record-low unemployment, contributed to a recovery in consumer demand, although its momentum weakened somewhat towards the end of the fourth quarter. Solid investment growth continued throughout the year, picking up by 8% underpinned by the energy transition forced by high energy costs. Investment activity was also positively affected by the finalisation of projects financed under the concluding EU financial perspective. Economic activity in 2023 was negatively affected by the reversal of the inventory cycle, following its abnormally strong growth in 2022. Net exports, on the other hand, made a positive contribution to GDP growth – imports were under negative pressure from weak consumption and lower purchases by businesses, and their growth rate was lower than that of exports. A rapid improvement in the external balance of the Polish economy was recorded over the course of 2023 – the current account deficit of 2.4% of GDP in 2022 turned into a surplus of more than 1% of GDP in 2023, boosted by a sharp decline in the prices of imported goods.
Labour market resilient to the slowdown
The labour market was stable in 2023, despite the continuing slowdown in economic growth. The registered unemployment rate in December 2023 was 5.1%, 0.1 p.p. lower than at the end of 2022. Labour force participation rates improved steadily – according to the Labour Force Survey, in the third quarter a record 56.8% of the population aged 15-85 was employed and the labour force participation rate was 58.4%. The number of foreigners in the domestic labour market grew steadily, with the Social Insurance Institution’s data indicating a stabilisation in the number of insured Ukrainians and an increase in the number of workers from other countries.
The decline in labour demand was reflected in fewer vacancies in the economy (111 thousand in the third quarter) and declining employment in the business sector. Nominal wages increased at double-digit rates in 2023, with the strongest increase recorded at the beginning of the year. The minimum wage increase of (on average) 17.8% in 2023 provided a noticeable boost, which was reflected in the above-average nominal wage growth observed in sectors with relatively higher minimum wage coverage (e.g. accommodation and catering, administration). In the first half of the year, wages in the corporate sector grew at a slower rate than inflation. However, the increase in real wages resumed in the autumn and its acceleration is driving the forthcoming recovery in consumption.
Rapid disinflation
2023 saw a marked disinflation, with CPI inflation falling from 18.4% y/y in February to 6.2% y/y in December. The fall in inflation was possible due to the extinction of a negative cost shock, which had pushed up energy and food prices sharply after Russia’s attack on Ukraine. At the same time, regulatory measures that have limited the increase in food and energy prices in the past remained in force. From February to the end of the year, the rate of increase in food prices decelerated from 24.0% y/y to 6.0% y/y, the rate of increase in energy prices from 31.1% y/y to 9.8% y/y, and fuel prices, which had increased by 30.8% y/y in February 2023, fell by 6.0% y/y in December. At the same time, core inflation, or CPI excluding food and energy, slowed to 6.9% y/y in December from 12.0% y/y in February 2023. At the end of 2023, the momentum of core inflation was half of what it was at the beginning of the year, but at the same time it stopped declining, signalling that core inflation may be anchored at an excessively high level.
Public finances under pressure but in check
The situation of national public finances has been deteriorating steadily since mid-2022 compared to other EU countries. Poland went from being a fiscal frontrunner in 2021 to moving towards the bottom of the EU ranking in terms of fiscal balance over the course of the subsequent two years, with factors such as energy price 'freezing’ programmes, PIT reform and the need to increase arms expenditure by leaps and bounds (from around 2% of GDP before 2022 to around 4% of GDP in 2023) contributing to these developments. After the first quarter of 2023, the general government deficit stood at 5.4% of GDP. The Ministry of Finance expects it to be 5.6% of GDP for the whole of 2023. Public debt in the third quarter reached 48.7% of GDP and remains low relative to the EU.
Adjustment of interest rates
During the first half of the year, the Monetary Policy Council (MPC) kept interest rates unchanged. It was only at the September meeting that an unexpectedly deep cut in NBP interest rates of 75 basis points was made, followed by a more conservative move of 25 basis points in October. Thereafter, the MPC went into wait-and-see mode and did not announce any changes to monetary policy parameters. The Council emphasises the high uncertainty surrounding fiscal and regulatory policy, as well as regarding the pace of economic recovery in Poland. Under these circumstances, the Council considered that the current level of interest rates is conducive to meeting the inflation target in the medium term.
NBP interest rates (end of the period)
| 4Q 2022 (%) | 4Q 2023 (%) | |
|---|---|---|
| Reference rate | 6.75 | 5.75 |
| Bill rediscount rate | 6.80 | 5.80 |
| Bill discount rate | 6.85 | 5.85 |
| Lombard rate | 7.25 | 6.25 |
| Deposit rate | 6.25 | 5.25 |