Page 16 - Poland Outlook 2024

Despite these challenges, experts anticipate a continued expansion of the Polish construction market in 2024, albeit at a slower pace than in recent years.
Poland’s construction sector has grown markedly in late 2023, particularly in September and October, when expansion reached 10.5% y/y and 9.8% y/y, respectively.
4.0 Fiscal policy outlook
Poland's public finance sector deficit is expected to exceed the limit of 4.5% of GDP projected in the budget bill, reaching 5.7% of GDP in 2024. This increase is primarily attributed to discretionary measures announced by the new government, including freezing electricity, gas, and heat prices for households until June 2024, maintaining a 0% VAT rate on basic food until the end of the first quarter of 2024, raising teachers' salaries by 30%, granting public sector employees higher wage increases than initially planned, and introducing an automatic second annual indexation of pensions and retirement benefits if inflation exceeds 5% y/y.
The new government's plans to extend some form of protective measures regarding food and energy prices into the second half of 2024 will further expand the deficit. However, there is a possibility that EU rules may be adjusted to exclude armaments expenditures from the excessive deficit procedure, allowing Poland to cover these expenses.
The new government's fiscal policy is expected to remain expansionary in 2024, with the absence of additional expenses in the prime minister's programme speech signalling a commitment to rationalise fiscal policy in the future. The government will also need to address the need to improve public finance transparency and implement long-term fiscal consolidation and energy transformation measures.
The 2024 budget will be largely based on the proposal prepared by the previous government, with additional programmes announced by the new administration adding around 1% of GDP to the State Treasury's deficit. The new government is working on amending the budget to include details of these programmes and their financing sources, potentially involving cuts in some expenditures.
The overall fiscal deficit in 2024 is expected to decrease slightly to 5.6% of GDP (versus 5.9% of GDP in 2023). The increased deficit is largely due to discretionary factors such as the sudden rise in defence spending, energy shield expenditures, and the fulfilment of election promises.
The primary structural deficit, which excludes debt servicing costs, is expected to increase from around 3% of GDP in 2022 to 3.5%-4% in 2023-2024 before gradually decreasing towards 2% in the following years.
While high borrowing needs are expected, the market is likely to accommodate them due to factors such as surplus deposits in the
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