Page 8 - Poland Outlook 2022

Poland is also no exception when it comes to inflation, as inflationary
pressures are building in most economies, leading to the start of monetary
policy tightening. China is one of the exceptions in this regard, its central bank
loosening monetary policy to fight a slowdown in GDP growth and the risk of a
collapse in the local real estate market. Elsewhere, the coming months will be
marked by rising inflation and the reaction of central banks.

In the euro area, inflation is the highest in 30 years, but unlike in the US, core
inflation remains relatively low, which supports the ECB's view of its temporary
nature.

The pandemic and economic situation in the Eurozone remains uncertain –
much like in non-euro countries – raising expectations for an extended
monetary stimulus while rate hikes in the euro area appear unlikely in 2022.
However, the increase in inflation expectations and the launch of the
post-pandemic recovery fund, which will support GDP growth, could mean that
some tightening could indeed take place in a shorter time than two to three
years.

Much in this regard will depend on the demand from China, where the
economy slows down following a declining real estate sector. If China’s central
bank rebuilds demand via lending support, the second half of the year could
see stronger economic growth, which, in turn, will have a bearing in Europe.

The risks to this broad outlook include the uncertainty of the course of the
pandemic, the intensity of supply constraints, and the scale of the slowdown in
China.

3.3 Inflation and monetary policy

While last year’s rise in inflation was a global phenomenon driven by n rising
energy and commodity prices and bottlenecks in supply, Poland added extra
ingredients. After the pandemic-induced recession, which proved shallower
than in most countries, there came a very strong recovery. In effect, robust
domestic demand thrived in the context of a labour market that was barely
impacted by the pandemic, and with a very accommodative monetary policy
and the CEE’s most generous fiscal easing, the arrival of high inflation was not
a question of if but when.

Inflation will not go away easily and is expected to remain above the National
Bank of Poland’s (NBP’s) upper range of deviation from its target rate (3.5%) in
2022. That will owe to domestic demand still going strong against the backdrop
of strong economic growth, low unemployment and rising wages.

The government's so-called anti-inflation package is expected to shave 1.5pp
off inflation but only in the first quarter, as measures contained in it are only
temporary. Inflation will rebound from Q2 on and the elevated CPI could persist
even as long as until Q1 2023.

“The starting point for inflation in 2022 will also probably be higher than we

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