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Fitch Ratings expects Polish GDP growth to accelerate to 3.3 percent in 2017 from 2.7 percent in 2016, driven by continuing rapid increases in consumption and a recovery in investment from low levels in 2016. Household incomes have been helped by a strong labour market (the unemployment rate reached a historical low of 4.8 percent in April) and increased transfers from the “Family 500+” policy.
The ramp-up in EU fund disbursements from 2017 will support public and private investment. Fitch expects a slightly negative contribution from external demand in 2017 as rapid domestic demand growth boosts imports. Growth is set to decelerate slightly, to 3.2% in 2018 and 2019, in part reflecting expected monetary and fiscal tightening from 2018. Given the openness of the Polish economy, the main risk to the outlook is weaker-than-expected external demand. Lower economic policy predictability since the 2015 political transition could affect the business environment and constitutes another risk to the outlook.
The risk of a full conversion of CHF mortgage loans (PLN161 billion, 25 percent of total loans to households, 9 percent of GDP) at a high cost to the banks has largely abated. Inflation has accelerated, to 1.9 percent y/y in May from −0.6 percent on average in 2016, in part driven by the y/y increase in commodity prices.
Monetary policy has remained highly accommodative in recent years as inflation (−0.9 percent on average in 2015, −0.6 percent in 2016) has been well below the central bank’s 2.5 percent target. The agency expects higher inflation to lead to hikes in the policy rate from 2018. Combined with the expected tightening in monetary policy by the ECB from 2018, Fitch expects the main policy rate to reach 3.0 percent by end-2019 from 1.5 percent now.
