In 2020, Poland’s economic contraction due to the coronavirus pandemic was estimated by Atradius at -2.8%, much less profound than the average EU decrease (-6.4%). The recession is helped by the fact that Warsaw’s economic performance depends on exports to a lesser extent than Central European partners such as the Czech Republic, Hungary, or Slovakia. At the same time, private consumption accounts for 58% of GDP, thus reducing vulnerability to external shocks (as evidenced in avoiding recession during the 2009 credit crisis). In 2021, analysts expect the economy to rebound by +3.8%, as the current wave of coronavirus infections can be contained and the vaccination process implemented on time.
In this scenario, the increase in government subsidies to families and pensioners, together with tax breaks, continues to support private consumption, while unemployment is expected to level out. Polish exports are expected to rebound by +9% after a contraction of 1.9% during 2020, supported by eurozone demand. Industrial production and investment are expected to grow by +10.6% and +3.2% this year, respectively.
In order to support the economy, the Central Bank lowered its benchmark interest rate three times in early 2020 to an all-time low of 0.1% since last May. This dovish stance is currently helped by lower inflation, which fell last December to 2.4%, below the average target of 2.5%. An inflation rate of 2.6% is expected this year.
In 2020, coronavirus-related fiscal stimulus measures accounted for about 12% of GDP. In order to support liquidity in sectors that suffered most in the second wave of the pandemic, in January the government launched an additional stimulus package called Financial Shield 2.0 to provide support mainly to SMEs active in 50 sectors, worth 2.9 billion euros. It should also be borne in hand that Poland will also benefit greatly from the Next Generation EU to help countries recover from the recession with additional subsidies: the Warsaw Government plans to use them as public investment in infrastructure, energy, and digitalization.
Due to global stimulus measures, the budget deficit increased to 8% last year (from 0.8% in 2019) and is expected to increase again during 2021, to 5% of GDP. Over the same period, however, public debt, which rose to 54% of GDP (from 47%), remained sustainable. And while the latter is subject to some currency risk and vulnerable to the confidence of international investors, its composition remains low-risk.