Government policies may further slow Polish growth

Significance

Poland has been locked in political turmoil since December 16, when opposition deputies occupied the Sejm against government proposals to curb journalists’ access to live debates. This crisis has coincided with a noticeable investment-led slowdown in the third quarter of 2016, when GDP growth slowed to 2.2%; unfavourable base effects are likely to have slowed growth further in the final quarter. The government’s expectations of a spurt in the first half of 2017 -- Law and Justice (PiS) leader Jaroslaw Kaczynski has called for 4% annual growth -- are optimistic.

Impacts

• Fiscal stimulus measures are likely to push the deficit towards the EU-mandated 3% of GDP threshold by end-2017, and breach it thereafter.
• A sovereign credit rating downgrade appears more likely as Poland’s fiscal profile deteriorates.
• Growth will remain modest this year, supported largely by domestic demand; without other GDP drivers, government targets will be missed.