Poland’s economic picture showed a December of mixed signals as inflation, wage growth, and employment numbers sent alarm bells ringing for policymakers. The Consumer Price Index (CPI) inflation was already at 4.9% y-o-y, as the real wage growth decelerated to just 2.7%. At the same time, it’s where we saw the largest decrease in employed people, down 0.9% YoY. These latest developments have prompted the Monetary Policy Council of Poland to consider a future interest rate cut. They could quite possibly make this decision as early as May.
In March, the industrial output proved relatively resistant to the crisis, growing by 2.5% y-o-y. The associated civil engineering sector fared very poorly, suffering an even deeper contraction of 4.9% over the same period. While most export driven manufacturers announced healthy increases in production, the wider economic indicators failed to meet bullish market expectations.
Inflation and Wage Growth Trends
Poland faced a CPI inflation rate of 4.9% year-on-year in March, showing strong underlying inflationary forces on the economy. This figure continues to be a key point of friction for the National Bank of Poland as it pursues its monetary policy. The monetary authority projected elevated core inflation in the first quarter of 2025. According to the latest data, we’re very lucky that those rates never came.
At the same time, real wage growth took a step back to 2.7% y/y, which has many eyes looking at the sustainability of consumers’ purchasing power. With inflation continuing to outdistance wage gains, many households could find themselves on very thin margins, limiting spending and economic growth. As of March, average growth of wage and salary payments in enterprises decelerated to 7.7% year-on-year. This trend is further evidence of the tough realities that U.S. workers contend with as they work to make ends meet.
Employment and Industrial Output
As in March, the job outlook for Poland has suddenly changed. The annual decline is much worse at 0.9%. The country actually lost 8,000 jobs from February to February. This trend raises the stakes for our domestic labor market. This loss of jobs will directly affect consumer confidence and spending as is always necessary for a healthy economy.
The industrial output showed remarkable strength despite these hurdles. The sector grew 2.5% y/y in March, due in large part to strong activity from export-led manufacturing. The other star of the climate pie, the construction sector, failed to deliver, contracting 1.1% yoy. This drop further highlights the lopsidedness of the economic recovery.
Future Outlook and Policy Implications
As Poland navigates these economic indicators, heightened uncertainty regarding the global economy’s condition may dampen business and household confidence domestically. Civil engineering sector’s year-on-year decline of 4.9% is cause for concern, with future infrastructure builds and jobs at stake.
Despite these challenges, experts anticipate that the construction sector may benefit from a public investment cycle in the coming months. This very rare potential for increased government spending could help boost growth and counteract some damaging trends we’ve seen in other parts of the economy.
Given the current situation, the Monetary Policy Council is closely monitoring economic indicators and may consider cutting rates as early as May to encourage spending and investment. Such a step would be intended to encourage economic activity during a time of stagnating wage growth and increasing inflationary pressures.