European Commission says Polish economy in good shape

The situation on Poland's labour market is the best in the country's recent history, the debt of central and local government institutions is expected to fall, while the general government deficit is set to stabilise, the European Commission (EC) said on Wednesday.

In a report on the convergence of economies from outside the euro-area, the EC refers to individual indicators and characteristics of EU economies outside the eurozone.

The document recalls that according to the EC's spring 2018 forecast, the general government deficit in Poland is to stabilise at the level of 1.4 percent of GDP in 2019. The report's authors predict that the the general government debt-to-GDP ratio will decrease to 49.1 percent of GDP in 2019.

However, they emphasise that considering that an important part of the sovereign debt is denominated in foreign currencies, the debt projections are subject to considerable uncertainty.

The EC also expects a further increase in tax collection in Poland, thanks to additional measures aimed at increasing tax compliance, especially in the area of indirect taxation.

In the report, the EC also refers to the Polish labour market. As the authors point out, its situation is the best in Poland's recent history. The EC stresses that employment rates have risen to the point that labour shortages are affecting business activity.

In the medium-term forecast, the EC expects that inflation in Poland will continue to increase gradually. The stronger złoty exchange rate in 2018, after an appreciation in late 2017, is expected to partly counteract strengthening pressure from accelerating wages amid a further tightening of the labour market. The Commission's Spring 2018 Forecast projected annual HICP (Harmonised Indices of Consumer Prices) inflation to average 1.3 percent in 2018 and 2.5 percent in 2019.

In the report, the EC recalls the recent changes in the Polish judicial system, which in its opinion threaten the judicial independence of the Polish Supreme Court and its president, who also chairs the State Tribunal. The Commission suggests, therefore, that it would be necessary to ensure that the Governor of the National Bank of Poland (NBP) has the possibility to seek legal redress against his/her dismissal by the State Tribunal before the Court of Justice of the European Union.

The EC also calls for the control powers of the Supreme Audit Office towards the NBP to be more clearly defined. In the EC's opinion, the current regulations are not fully compliant with the statute of the European Central Bank, to which the NBP will be subject after the entry of Poland into the eurozone.

The Commission also says in the report that Poland, as regards the prospects of joining the eurozone, meets the criterion of price stability and the criterion regarding the situation of public finances. However, it does not meet the exchange rate criterion (as does no other member country outside the eurozone) or the criterion on the convergence of long-term interest rates.

These are the so-called convergence criteria, sometimes called the Maastricht criteria, as defined in the Treaty on the Functioning of the European Union (TFEU). These include price stability, sound public finances, exchange rate stability and the convergence of long-term interest rates.

On Wednesday, the Commission also published recommendations regarding the economic situation in the 27 other EU countries (excluding Greece).

In the case of Poland, it recommends increasing the level of employment in the country, including by improving access for employees to the childcare system and promoting relevant skills in the labour market, especially encouraging adults to acquire new qualifications. The EC also wants the effective retirement age to be raised.

It also advises strengthening the innovative potential of the economy, including through the development of cooperation between business and research institutions. The Commission also suggests improving environmental regulations while ensuring public and social consultations in the legislative process.