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The Warsaw Voice » Business » March 13, 2018
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New inflation projection by NBP
March 13, 2018   
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Poland's inflation is expected to exceed the 2.5% the target set by the Polish central bank NBP in the 2nd quarter of 2019 and stay between the target and the upper end of the target range till the end of 2020, when it will get a boost from positive output gap widening to 1.8% of a potential GDP and from continued labor market trends, NBP's latest inflation projection showed.
According to the projection in the following years, the output gap will increase and will measure 1.8% of a potential GDP at the end of projection horizon. “The size of the gap allows to conclude that demand pressure will increase in the whole economy in the coming years and the improved sentiment will gradually be reflected in increased domestic inflation."
The demand side trends will be strengthened by the situation on the labor market, with acceleration in wages being driven by continued demand for labor among limited labor supply, NBP researchers said.
Poland's employment growth rate is expected to slow down over the projection horizon (2020) as demand for labor should rise at a lower rate in the coming years. Also, employment growth will be increasingly held back by limited supply of labor force.
Wage growth will stay high, exceeding labor productivity growth in the projection horizon, supported by falling unemployment, large number of job offers and declining probability of losing a job, the researchers enumerate. Factors that should act towards reducing wage growth rate include the still low number of enterprises which see employee shortage as development barrier and the inflow of immigrants from Ukraine.
Those inflation pressures will be partially mitigated by the strengthening zloty, low global inflation and expected decline in energy commodity prices, NBP said. Poland's zloty effective exchange rate is expected to strengthen over the projection horizon, gradually approaching the equilibrium exchange rate, the document reads.
GDP growth is expected to slow down after the peak in the second half of 2017, the projection shows. The growth in 2018 is expected to reach 4.2% and then ease further to 3.8% in 2019 and 3.6% in 2020.
Individual consumption will remain the main growth driver, gradually supplemented by a rebound in investments. Investment recovery is expected to be driven by current capacity constraints and EU fund inflows.
GDP growth path was revised upwards versus the November NBP projection mainly thanks to more favorable views to capital formation as well as private consumption, while the role of foreign trade will diminish compared to the prior projection, according to the document.
Major risks for the projection still include the global economic outlook and developments of labor supply in Poland.
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