Poland’s strong fundamentals weakened by war, OECD report
Poland’s economy has been greatly impacted by both the COVID-19 pandemic and Russia’s war of aggression against Ukraine.
Although the country has made a strong recovery from the pandemic, growth is currently stalling, and inflation is at its highest level in two decades. The implications of these developments extend beyond Poland, as the country’s economic success has been closely watched by the global community.
In response to these challenges, the OECD has released a report outlining the need for macroeconomic policies that balance economic support with inflation control. Additionally, the report suggests structural reforms aimed at facilitating a successful green transition, benefiting from digitalization, and strengthening public finances will help Poland continue to improve living standards.
The report emphasizes the importance of striking a careful balance between monetary and fiscal policy to support growth while avoiding high inflation expectations.
Additionally, given Poland’s aging population, the country must improve workforce participation and productivity by broadening the tax revenue base, extending working lives, and enhancing spending efficiency in areas such as health and infrastructure.
Despite the challenges facing the Polish economy, the OECD Secretary-General has expressed confidence in its fundamentals, and Poland’s success in raising living standards has been impressive.
More work needed
Nonetheless, there is still work to be done, including accelerating the development of renewable energies, promoting digital and managerial skills development, and ensuring a sustainable fiscal trajectory.
The report also notes that Poland has been generous in welcoming and integrating over a million refugees from Ukraine in the wake of Russia’s invasion. However, economic activity is expected to remain weak in the short term due to high energy prices, weak domestic demand, and global uncertainty.
The survey projects growth to recover in 2024, with inflation peaking in early 2023 before falling to 3.5% by the end of 2024.
To address mounting pressures on public finances from population aging, higher health and defense spending, and low digital skills, the report recommends a comprehensive spending review, improving spending efficiency, broadening the tax revenue base, and extending working lives. The government must also follow through on a planned revision of its strategy to achieve climate neutrality by changing energy supply.
Given Poland’s continued reliance on coal, the report recommends a just transition to net-zero that includes closing coal mines and complementary policies to the whole coal value chain. As a significant player in the global economy, Poland’s economic success or failure will have global repercussions.