Poland's GDP will drop by 4.3 pct in 2020, EU forecasts

Risks to the forecast are tilted to the downside, according to the EC. Stephanie Lecocq/PAP/EPA

The Polish economy will shrink by 4.3 percent in 2020 and will expand by 4.1 percent in 2021, as the HICP inflation declines to 2.5 percent in 2020 and edges up to 2.8 percent in 2021, the European Commission (EC), the EU's executive arm, said on Wednesday.

"The COVID-19 pandemic is set to end nearly three decades of uninterrupted growth in Poland. GDP is projected to decline in 2020 by about 4.25 percent due to a disruption in economic activity caused by the lockdown measures and an unprecedented fall in external demand. In 2021, GDP should bounce back by 4 percent driven by a strong recovery in household consumption. Nonetheless, GDP is unlikely to return to 2019 levels over the forecast horizon," the EC said in its Spring 2020 Economic Forecast.

Risks to the forecast are tilted to the downside, according to the EC.

"The recovery will largely depend on the effectiveness of government measures and how they cushion the impact of the shock on the labour market. Also, beyond global downside risks, the virus could have a long-lasting impact on some sectors, particularly services, which could limit the scope for recovery," the EU body went on to say.

Poland's unemployment is to grow to 7.5 percent in 2020, according to the forecast.

"The labour market is set to be impacted by the lockdown measures and the drop in demand, bringing the unemployment rate to around 7.5 percent in 2020. This will likely lead to a sudden reversal in the increasing trend in wages observed in recent years, especially in the services sector. However, the drop in wage growth is to be partly offset by previously decided increases in public wages. In 2021, while employment is set to recover strongly, wages are expected to follow only moderately," the report states.

Both Polish imports and exports are set to decline.

"Falling demand from Poland’s main trading partners and disruptions in international trade are expected to cause a drop in both exports and imports in 2020. However, owing to the structure of Polish exports and increased price competitiveness, the trade balance is projected to remain broadly unchanged in 2020. As external demand recovers, exports are projected to surge in 2021, improving the trade balance," the EC wrote.

The Harmonised Index of Consumer Prices, or HICP inflation, will be constrained, the EC said.

"HICP inflation accelerated to 2.1 percent in 2019 and is estimated to have peaked in the first quarter of 2020 at almost 4 percent, driven by an increase in food and service prices. Inflation is then set to weaken markedly from the second quarter onwards, in line with a drop in oil prices, falling demand and a sharp decrease in wage growth. Overall, inflation is expected to moderate to 2.5 percent in 2020 and to increase to 2.8 percent in 2021 as the economy recovers," the EU body wrote.