Mathias CORMANN: Poland can navigate the challenges and lay the groundwork for a strong and high-quality economic recovery

Poland can navigate the challenges and lay the groundwork for a strong and high-quality economic recovery

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Secretary-General of the Organization for Economic Co-operation and Development (OECD).

Ryc. Fabien Clairefond

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The Polish economy has been well served by a robust policy framework and favourable business conditions, allowing it to converge in living standards to more affluent economies and to navigate the massive shocks that have been experienced in recent years.

.The global economic outlook and the economic outlook for Poland have been materially impacted by Russia’s unprovoked, unjustifiable and illegal war of aggression against Ukraine. That war has imposed a heavy price, tragically first and foremost on the people of Ukraine, but also on the entire world. It has had, and continues to have, deep social and economic repercussions. The Polish people have seen many of these impacts firsthand, showing exceptional generosity in their reception of refugees and their very strong support for Ukraine everywhere. As the international organisation bringing together market-based democracies from around the world, the OECD continues to stand in strong solidarity with and support of the people and the democratically elected government of Ukraine. Poland has been a strong voice on Ukraine within the OECD family, instrumental in helping to shape our response to this war. This has included initiating and supporting the establishment of an OECD Ukraine Liaison Office, which, having operated from Paris over the past several months, will formally open its doors in Kyiv this week.

Over 9.5 million Ukrainian refugees crossed the Polish border from Ukraine. Official estimates suggest that some 1.6 million stayed in Poland, equivalent to 4% of the Polish population. Most of the refugees are women and children. Polish people have provided housing, financial support, schooling and access to healthcare, while opening their labour market to allow refugees to work. It is encouraging that many have been able to find jobs, with children attending Polish schools. Between January and November 2022, the Polish government was the sixth largest supporter of Ukraine in terms of financial and other aid provided. Total support to Ukraine over that period came in at about 1.5% of Poland’s GDP, making the Polish people one of the most generous supporters of Ukraine.

The economic shock of the war came just as Poland and the rest of the world were recovering from the COVID-19 pandemic. The Polish economy bounced back strongly in 2021, reaching its pre-pandemic level earlier than many other OECD countries. Last year, it grew by a still very strong 4.9%, but growth has been more volatile with inflation at its highest level in two decades. Economic prospects have weakened, driven by higher energy prices, caused to a large extent by the war. As labour markets remain tight, with an unemployment rate close to a very low 3%, underlying domestic inflationary pressures have been strong, pushing core inflation up to 12% in December. Headline inflation is likely to remain high this year as well, close to 13%, before easing to 4.6% in 2024. The OECD projects GDP growth of around 1% this year, before it recovers to 2.4% in 2024. 

In this challenging environment macroeconomic policy needs to strike a fine balance between supporting the economy and reducing inflation. For that, the National Bank of Poland will need to remain vigilant and to stand ready to increase interest rates further, if it becomes clear that higher inflation expectations are becoming entrenched. Fiscal support has protected households and firms from the energy price shock, but future measures must be very well targeted, to make sure that they support those who need them most without unduly adding to inflationary pressures. Indeed, macroeconomic policies overall should align to tackle the inflation challenge, while also preserving the incentives to reduce energy consumption and boost investment in additional energy supplies. 

The OECD has increased its economic surveillance in relation to resilience, in addition to its existing focus on the sustainability and inclusiveness of growth. Poland, like many other OECD economies, needs to address a range of structural challenges. 

First, population ageing, which poses a challenge to fiscal sustainability, both given the drag on productivity and growth through lower workforce participation at a time when ageing related costs will continue to increase. To ensure long-term fiscal sustainability and reasonable pensions, working lives should be extended by gradually aligning male and female statutory retirement ages and by increasing the pension age in line with life expectancy gains in good health. More broadly, Poland must boost the size of its workforce by encouraging longer working lives, increasing participation of specific groups such as young parents and facilitating immigration. In this regard, recent measures to incentivise pensioners to work, as well as expanding childcare capacity and the skilled migration programme are welcome. Furthermore, Poland should consider broadening its revenue base by streamlining reduced VAT rates and exemptions and revising property taxation, while also increasing the efficiency of government spending through a comprehensive spending review. 

Poland has enjoyed tremendous productivity growth over the past three decades or so. GDP per capita has tripled since the early 1990s, reaching around 80% of the OECD average. Digitalising the economy can drive productivity growth even further, helping to unleash the entrepreneurial potential of Polish businesses at home and in global markets. Adoption of digital technologies is relatively low among firms, particularly small to medium-sized ones. Digitalisation could be further facilitated through expanded technical support to raise awareness and assist managers in implementing new digital technologies. The Polish Deal seeks to do this by introducing new tax incentives for research and development and investment in robotisation. The government could also increase direct funding for information communications technology and research and development to further boost innovation. 

Giving people the right, up-to-date skills is also important to help everyone participate in and benefit from the digital transformation. Poland has significantly improved educational attainment and ranks among the top 10 countries in the Programme for International Student Assessment. Continuing on this trajectory by providing adequate equipment in schools, training teachers to teach digital skills and giving more opportunities to students to apply their digital skills in practice, will position Poland very strongly in this digital age. Education must be inclusive, and more women should be encouraged to study information communications technology. Among older adults, like in many OECD countries, digital skills are lower and can be improved, while further education can be made more practical and flexible. 

Poland has made progress towards more sustainable economic growth but, as with many countries, significant acceleration in the climate transition is needed. With around 40% of Poland’s energy supply relying on coal, the carbon intensity of the economy remains high. People continue to be negatively affected by poor local air quality. The heightened focus on energy security as a result of the war is an opportunity for Poland’s review of its energy strategy to consider greater development of renewables, diversification of technologies and improved energy efficiency, while minimising reliance on coal in the near term. Moreover, incentives and regulation can provide clear price signals to households and firms to decarbonise. To complement this, investment in the electricity grid should be increased and expedited to overcome capacity constraints. As the role of coal in the energy production diminishes over time, a just transition will require well-targeted retraining and upskilling for both the hard and lignite coal sectors.

.The Polish economy has been well served by a robust policy framework and favourable business conditions, allowing it to converge in living standards to more affluent economies and to navigate the massive shocks that have been experienced in recent years. An end to the war and a just peace for Ukraine consistent with international law would be the most impactful way to boost the global growth outlook right now. Until then, we need measures to continue to address immediate pressures, while still progressing our reforms to address longer-term structural challenges. We need well-designed, well-coordinated policy responses. The OECD will continue to support our Member countries and the global community with our data and policy analysis, our best practice policy advice, while facilitating dialogue and evidence-based problem solving. The scale of today’s challenges is significant. Responding to them with sensible, well considered policy action is the way towards a better and brighter future. The OECD is here to help and work with Poland to build on its strong economic fundamentals.

Mathias Cormann

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