Macroeconomic environment

Macroeconomic factors which shaped the national economy in 2022 are presented below:

The national economy entered 2022 with a high rate of economic growth, but over the course of the year there was a marked slowdown from 8.5% y/y in the first quarter to 2.0% y/y in the fourth quarter. The cost shock associated with the outbreak of war in Ukraine, most evident in the prices of energy and agricultural commodities, had a negative impact on activity, but owing to a very good start to the year, the whole of 2022 closed with a solid GDP growth of 4.9%. Investment increased, despite high uncertainty, reflecting companies’ efforts to reduce the negative effects of rising energy costs (efficiency improvements, investment in alternative energy sources). The decline in the purchasing power of income resulted in a gradual slowdown in the rate of growth of private consumption. The increase in household consumption was mainly driven by the spending of refugees from Ukraine, whose influx after the outbreak of war increased Poland’s population by around 4%. Despite the slowdown experienced in the global economy, Polish exports remained on an upward trajectory, helped by the unblocking of global value-added chains and the price competitiveness of domestic production. Rapidly rising import prices have contributed to a significant increase in the trade and current account deficits of the balance of payments. Similar trends were apparent in all energy-importing countries in the Central and Eastern European region.

The labour market continued to improve in 2022. Although consumer surveys in the second half of the year indicated an increase in consumer concerns about rising unemployment, these concerns were not reflected in actual labour market performance. In December, the registered unemployment rate stood at 5.2%, 0.6 p.p. down on the end of 2021. The domestic labour market absorbed an unprecedented influx of war refugees in 2022 – some 440,000 refugees from Ukraine found employment in Poland. The employment rate is estimated to have exceeded 60% among working-age war refugees.

In the third quarter, the number of vacancies in the economy was still high at 135,000; in the fourth quarter, entrepreneurs continued to indicate in business surveys that it was very difficult to find skilled workers – both elements limit the room for a significant increase in unemployment, even in a downturn. Over the course of the year, wages grew at a solid double-digit rate; however, in the second half of the year, the rate of growth of wages in the corporate sector was lower than inflation, implying a decline in real terms. Above-average wage increases, higher than inflation, were recorded only in a few industries (transport, mining, energy), while in other sectors wage dynamics were moderate, implying that there was no price-wage spiral phenomenon. In the second half of 2022, the labour market adjusted to the lower economic growth rate mainly through a reduction in real wage dynamics and a decrease in the demand for new employees, rather than through a reduction in employment and an increase in unemployment.

CPI inflation in 2022 was at a strongly elevated level and the intensity of inflationary processes was significantly amplified after Russia’s attack on Ukraine. CPI inflation rose sharply from 8.6% y/y at the end of 2021 to a peak of 17.9% y/y in October 2022, despite the government’s introduction of the Anti-Inflation Shield, which reduced the annual rate of price growth by 2-3 pp. The main drivers of inflation were energy and fuel prices and, in the second half of the year, food prices. Inflation eased to 16.6% y/y in December, reflecting a downward correction in fuel and heating fuel prices. Price increases observed in the economy during the year were broad-based and covered almost all categories of the inflation basket, reflecting the widespread pass-through of higher business costs to the final consumer (so-called second-round effects). Core inflation (CPI excluding food and energy prices) increased to a record 11.5% y/y in December. In 2022, the surge in inflation was global in nature and particularly pronounced in Europe, which was struggling to cope with soaring energy prices due to Russia’s aggression against Ukraine. Central and Eastern European countries faced particularly high inflation.

The fiscal deficit (ESA) after the third quarter of 2022 stood at 2.3% of GDP (compared to 1.5% of GDP after the second quarter and 1.8% of GDP in 2021). The increase in the deficit during the third quarter was mainly driven by an increase in social transfers, particularly related to refugee aid. Public debt was on a downward trajectory in 2022 and accounted for 50.3% of annual GDP in the third quarter compared to 53.8% of GDP at the end of 2021. State finances were supported by strong nominal growth in the tax base (consumption, corporate performance) and the transfer of profits of the National Bank of Poland. As a result, despite incurring the costs of the Anti-Inflation Shield (loss of tax revenue) and aid to Ukraine, a solid budget surplus (PLN 18.3 billion) was maintained until November (latest available data).

In the first three quarters of 2022, the Monetary Policy Council (MPC) continued the cycle of interest rate rises started in October 2021 in response to the deteriorating inflation outlook. The reference rate increased from 1.75% at the end of 2021 to 6.75% in September, and from the beginning of the cycle, i.e. from October 2021 to September 2022, the NBP reference rate was increased by a total of 665 bp., making this cycle the fastest and largest ever. During the third quarter, the MPC began to signal that the hike cycle was coming to an end, and in October the MPC announced a pause in the hike cycle, which was maintained until the end of 2022. The MPC stressed that the hike cycle was not definitively over and could be resumed if necessary. According to the NBP’s projection of November 2022, CPI inflation is expected to return close to target within the monetary policy horizon, allowing for at least a suspension of the rate hike cycle. In the fourth quarter of 2022, the halt in the NBP’s interest rate hike cycle and the halt in inflation increases significantly altered market expectations for further changes in monetary policy. FRA contracts have stopped pointing to further interest rate rises, measuring the scenario of the reference rate stabilising at 6.75% for most of 2023.