Growth, Challenges, and Policy Recommendations
Poland’s economy has shown remarkable resilience in the face of global economic headwinds. With strong policy measures and strategic reforms, the country is well-positioned to continue its convergence with higher-income EU economies. However, ensuring long-term prosperity will require a steadfast commitment to fiscal discipline, inflation control, and structural transformation to address the evolving economic landscape.
The International Monetary Fund (IMF) recently concluded its Article IV consultation with Poland, revealing a dynamic economic landscape marked by both opportunities and challenges. The Polish economy demonstrated resilience in 2024, with growth estimated at 2.8%, driven primarily by a rebound in domestic demand. However, structural challenges such as inflation, fiscal pressures, and demographic trends pose significant hurdles for sustainable long-term growth.
Economic Growth and Key Drivers
Poland’s economic expansion in 2024 has been fueled by strong private consumption, supported by robust wage growth and declining inflation. As inflationary pressures eased, real incomes improved, leading to higher household spending. Despite these positive trends, net exports posed a drag on growth due to subdued demand from the Euro Area, Poland’s key trading partner.
Looking ahead, growth is projected to accelerate to 3.5% in 2025 and 2026, driven by the absorption of Next Generation EU (NGEU) funds. These funds are expected to support infrastructure investment, innovation, and productivity enhancements across various sectors. However, beyond 2026, growth is anticipated to moderate to below 3% as the impact of EU funds diminishes and demographic challenges intensify.
Fiscal Pressures and Public Debt
The fiscal deficit widened to an estimated 5.9% of GDP in 2024, primarily due to increased public sector wages and social benefits, partially offset by savings from lower energy subsidies. In 2025, the deficit is expected to remain high at 5.6% of GDP, largely due to elevated defense spending amid geopolitical uncertainties.
Poland’s government has outlined a medium-term fiscal consolidation plan aimed at reducing the deficit to 2.9% of GDP by 2028. However, the IMF report highlights that additional measures will be necessary to achieve this target, with fiscal consolidation efforts likely to focus on revenue mobilization, targeted social spending, and pension reforms. Public debt is projected to stabilize around 65% of GDP in the medium term, provided that fiscal discipline is maintained.
Inflation Trends and Monetary Policy
Poland has made significant progress in curbing inflation, which has declined sharply from 2023 levels. However, core inflation remains elevated due to strong wage growth and persistent labor market tightness. The IMF anticipates inflation to moderate to the upper end of the National Bank of Poland’s target range of 2.5±1% by the end of 2025.
The monetary policy stance remains tight, with the central bank prioritizing price stability. The IMF recommends maintaining a cautious approach, with potential interest rate cuts only once inflation demonstrates a sustained downward trajectory and wage growth decelerates. Ensuring that inflation expectations remain anchored is crucial for long-term economic stability.
Financial Sector Resilience
Poland’s financial system remains robust, with capital and liquidity buffers well above regulatory requirements. Asset quality has improved, and bank profitability has been bolstered by higher net interest margins. The private credit market has shown signs of recovery, supported by initiatives such as the subsidized mortgage scheme.
Despite these positive indicators, the IMF cautions against further regulatory tightening that could impede credit growth. Efforts to enhance financial sector stability should focus on addressing legal risks and reducing distortions in private credit markets.
Foreign Workers and Economic Contributions
Poland’s labor market has undergone a significant transformation in recent years, shifting from a net labor exporter to an importer of foreign talent. The influx of foreign workers, particularly from Ukraine and Belarus, has been instrumental in alleviating labor shortages. Pre-pandemic, Ukrainian workers constituted the majority of foreign labor, and their presence has only grown following the war in Ukraine, which brought a significant influx of refugees.
Currently, around 1 million foreign workers are officially registered in Poland, but the actual number is likely higher due to informal employment. Foreign workers are predominantly employed in the service sectors, with administrative and support services being the largest employer. The Polish government has taken proactive measures to facilitate their integration into the labor market by providing access to work permits and social security benefits.
Despite their contributions, foreign workers and refugees face challenges such as language barriers, skill mismatches, and difficulties in having their qualifications recognized. Addressing these challenges through targeted policies, such as vocational training and support for language acquisition, will be crucial in maximizing their potential contribution to the economy.
Moreover, demographic trends underscore the importance of foreign labor in sustaining economic growth. As Poland’s native working-age population declines, foreign workers can play a key role in bridging labor gaps and ensuring continued economic momentum.
Structural Reforms for Sustainable Growth
To sustain long-term growth, Poland must undertake comprehensive structural reforms aimed at enhancing productivity and addressing demographic challenges. Key policy recommendations include promoting labor market participation among women, older adults, and refugees, strengthening the innovation ecosystem by providing incentives for research and development, and accelerating efforts to decarbonize the economy.
Policy Recommendations and Outlook
The IMF emphasizes the need for a balanced policy approach to sustain Poland’s economic momentum. Fiscal policy should prioritize reducing the deficit and ensuring debt sustainability while preserving essential public investments. Monetary policy should remain data-driven, with adjustments contingent on inflation dynamics.
While the near-term outlook remains positive, risks to growth include external shocks, geopolitical uncertainties, and a slower-than-expected recovery in the Euro Area. Strengthening economic resilience through prudent macroeconomic management and structural reforms will be key to navigating these challenges effectively.
