Polish Economy Ready for Rebound to Pre-Virus Boom, Gowin Says

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Poland has “undoubtedly” emerged from its first economic slump in three decades, while European Union stimulus and a government plan to boost spending will stabilize the economy and ensure strong growth in the coming years, Deputy Prime Minister Jaroslaw Gowin said.

Polish output shrank for a fourth straight quarter in the first three months of this year. But Gowin, whose portfolio includes overseeing the EU’s largest eastern economy, characterized the government’s 2021 forecast for 4% annual growth as “cautious” and said manufacturing data support expectations the expansion will hit 5% next year.

“We’re back on the path of pre-pandemic growth, while programs based on EU support and the government’s strategy will ensure a sustained expansion in the longer term,” Gowin said in an interview in Warsaw.

Poland’s nationalist government has pumped more than 9% of GDP of stimulus into the economy to combat the effects of the coronavirus, while the central bank slashed rates and bought government bonds to lift demand.

That helped keep unemployment low and the zloty weak, which boosted exports and helped prevent the economy -- which bottomed out in an 8.3% annual contraction a year ago -- from plumbing levels forecast as even worse.

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Poland’s ruling Law & Justice Party is now planning to boost spending on health care and housing in plan to rejuvenate the economy and win back popularity before 2023 elections. The program includes 72 billion zloty ($19.3 billion) of new spending a year, helped by 58 billion euros ($70.4 billion) of EU grants and loans and a tax system revamp.

Gowin said he also wanted to focus investment to push Polish companies to engage in innovative projects and help Polish producers replace Asian competitors in the wake of the pandemic.

“My goal is to support our entrepreneurs in expanding so they can permanently fill the gaps resulting from broken supply chains,” he said.

Inflation Question

At the same time, inflation has resurfaced and topped the upper end of the central bank’s target range last month at 4.3% from a year earlier.

Some officials suggest it’s time for the Monetary Policy Council to act. Finance Minister Tadeusz Koscinski said last week he wished inflation were lower, while the head of the state development fund, Pawel Borys, said Monday the normalization of interest rates should begin this year.

But most Polish rate setters expect the uptick in price growth to prove temporary and allow them to keep the benchmark interest rate near zero for another year. Most also see cost-driven core inflation as outside of their control, an assessment that Gowin agrees with.

“Elevated inflation is now partially of external nature, unrelated to the actions of the MPC or the government,” Gowin said. “It’s a delicate issue, which should be solved independently from the government. In respect to economic growth, for the purchasing power of the income of Poles and care for their savings, excessive inflation is not desirable.”

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