Polish economic growth slows to 2.8% in 2016

Polish economic growth slows to 2.8% in 2016
By bne IntelliNews January 31, 2017

Poland’s GDP grew 2.8% in 2016, the slowest expansion in three years, a preliminary estimate from the country statistical office GUS showed on January 31.

The result was 0.1pp above consensus as an uplift in the fourth quarter knocked aside extremely pessimistic forecasts, but the sluggish performance remains a worry for a government that is betting on strong growth to fund populist spending programmes.

The ruling PiS party had predicited early in the year that a boom of 4% was likely last year. GDP expanded 3.9% in 2015. Last week, Deputy Prime Minister Mateusz Morawiecki suggested growth in 2014 and 2015 may have been misrepresented due to massive VAT frauds. A higher base in 2015 would clearly exaggerate the weakness in 2016.

However, a sharp fall in investment, and erratic performance in industry and export demand, put paid to that. What economic expansion there was in 2016 was driven almost solely by household consumption, powered by rising wages and falling unemployment.

Household consumption grew 3.6% in 2016, faster than the 3% growth in 2015. Investments fell 5.5%, compared to an expansion of 6.1% the previous year as Poland raced to absorb the last of the EU funds available under Brussels' 2007-13 budgetary window.

Warsaw now hopes to see investment perk up early this year. In particular, it expects to get EU funded public projects flowing again in the first quarter. However, absorption remains an issue, while private investment has clearly been knocked by the government's erratic and authoritarian policymaking.

“The [result] is a disappointment, given that in early 2016, forecasts assumed growth of 3.6%,” Bank Millennium writes. The analysts express hope, however, that the economy likely passed its trough in the third quarter. “We assume growth in 2017 at 3.1%, thanks to a revival of economic activity in the second half of 2017,” they forecast.

Clamping down on tax avoidance, including VAT payments - which Morawiecki said were some PLN30bn (nearly €7bn) amiss in 2014 and 2015 - is one of the PiS government's professed priorities. One of the measures to discourage VAT frauds is a draconian penalty of up to 25 years in prison for fraud of over PLN10mn, passed by the parliament on January 30.