Page 9 - Poland Outlook 2024

“A global shift towards interest rate cuts, coupled with a conservative stance from the NBP, may exert pressure on the appreciation of the złoty. While this would improve inflation prospects, it could also be interpreted by the NBP as a significant threat to the competitiveness of the economy. Therefore, the central bank may face the dilemma of (slow) interest rate cuts or a significant strengthening of the złoty,” PKO BP also said.
In that scenario, the NBP delivers two interest rate cuts of 25bp each to 5.25%, with the cycle continuing incrementally in 2025, when the reference rate will fall to 4.5%.
A sustained return of inflation to the NBP target remains a distant prospect and is almost certain not to happen before the second half of 2025 only.
Before that, low unemployment, rising labor costs, the rebuilding of private consumption, expansionary fiscal policy, and the revived demand for credit will slow down the process of disinflation. A similar effect may result from unlocking funds from the KPO, influencing the growth of aggregate demand in the economy.
The main sources of uncertainty are: the persistence of core inflation, regulatory changes, and zloty exchange rates and commodity prices.
Other sources of uncertainty for the inflation path are also unstable weather conditions, which can affect the formation of food prices, as well as the uncertain geopolitical situation, which may increase the volatility of energy prices.
Sources of uncertainty for the interest rate forecast are chiefly the pace of disinflation and regulatory solutions affecting price changes, the scale of fiscal easing, the restrictiveness of the Fed and ECB policies, the PLN exchange rate, and shocks in the energy commodities market.
2.4 Labour market
Polish employees have not been in such an advantageous position as they are now in decades. With the unemployment rate forecast to not move much above 5% in 2024, falling inflation, and the demand for labour expected to strengthen this year due to a fundamental recovery of economic growth, Poland’s labour market is set to remain tight.
The resulting double-digit growth in wages will boost consumption, as falling inflation will ensure that wages’ real growth is 5% at the beginning of the year, likely moving north in the third and fourth quarters. That will come on the back of accelerating economic activity, which will help wage growth to what is currently forecast as 3%-4% in 2024 as a whole.
“We believe that employment will stabilise in the beginning of the year due to the delayed response of the labour market to improving economic activity. Later in 2024, we anticipate an increase in labour demand,” Bank Millennium wrote in an analysis.
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