Macroeconomic environment

In 2021, the impact of subsequent waves of the pandemic on the business activities was considerably weaker than in 2020. Due to the progress of the vaccination programme, the scale of restrictions applied in 2021 was limited, and the economy has already recovered from pandemic losses in the second quarter. After a drop of 2.5% in 2020, the GDP growth in 2021 amounted to 5.7%, according to preliminary data. The year-to-year growth rate was positive starting from the second quarter, when it amounted to a record high of 11.2% y/y. The GDP growth was stimulated by a rapid recovery of demand, mainly from consumers, after lifting the pandemic restrictions. The investment dynamics in the second half of the year amounted to 10% y/y. Despite disruptions in the global value-added chains, which resulted from an insufficient supply of key components, exports grew at a two-digit pace. The strong growth of imports reflected, among other things, a change in the model of managing inventories from just-in-time to just-in-case and their significant increase. As a result, at the end of the year, the current account surpluses visible over the last two years turned into a deficit. At the end of the year, business activities were increasingly affected by inflation processes – both companies and households faced ever growing operating expenses and costs of maintenance which resulted, among other things, from a rapid increase in energy prices in Europe.

The situation on the labour market in 2021 increased systematically. The recorded unemployment rate in December amounted to 5.4% compared with 6.3% at the end of 2020. Following the elimination of seasonal factors, unemployment was only 0.2 p.p. higher than before the pandemic (in the worst period the reaction of the unemployment rate to the pandemic amounted to 1.1 p.p.). According to BAEL, unemployment dropped in the third quarter of 2021 to a nearly record low of 3.0%, and the labour force participation rate increased to a record high of 58.2%. The increase in the labour force, makes it possible to satisfy the demand for jobs despite unfavourable demographic trends. The situation on the domestic labour market is tense due to the limited supply of potential employees. The number of available jobs recovered to the pre-pandemic level and during the year, the share of companies which reported recruitment problems grew, and this supported pressure on salaries, also in reaction to increased inflation. The average remuneration in the corporate sector was at a level exceeding the pre-pandemic level and –- what is important from the perspective of consumption base –- its growth rate still exceeded inflation. The growth rate of wages and salaries in the second quarter was supported by the effect of the low statistical base increased to around 10% y/y and remained close to this level by the end of the year, which suggests that despite a considerable increase in inflation, the wage-price spiral did not launch in 2021.

The CPI inflation remained within the admissible variation range from the NBP target (2.5% +/- 1%) only in the first quarter, and subsequent months brought a considerable increase to a record high (in more the 20 years) of 8.6% y/y in December. During the year, inflation was enhanced by fuel prices (the effect on an increase in global demand for oil and the low statistical base), energy (a strong growth in demand combined with disruptions on the gas market and an increase in the CO2 emission allowances prices, and food. External factors which exacerbated inflation in 2021 worldwide accounted for approx. 80% of the increase in the price index. Pressure on price increases was nevertheless very broad and covered both goods and services. The core inflation increased in December to 5.3% y/y and was the highest in the last 20 years. Inflation in January 2022 increased to 9,2%, however the announced by the Government Anti-inflaiton Shield will reduce it from February 2022 by about 3.3 p.p.

The robust increase in nominal GDP and its fiscally effective structure supported the results of the State budget in 2021. Even after November, the budget showed a surplus of PLN 50.4 billion against a deficit of PLN 40.5 billion assumed in the Budget Law for the entire year. The accumulated revenues grew by 18% y/y, of which tax income by 17.4% (of which mainly CIT: 25.1% y/y), and non-tax incomes (among others, a distribution from the NBP profit and revenue from an auction of CO2 emission allowances) of 23.6%. As at the end of the year, the budget probably showed approx. PLN 25 billion deficit, and additionally approx. PLN 50 billion accounted for expenses from anti-COVID funds not covered by the budget. The fiscal situation improved considerably during the year, and the deficit according to ESA (covering a broad public sector) dropped to an estimated 2.5% of the GDP from 7.1% GDP in 2020. The public debt probably went down in relation to GDP to 56.5% from 57.4% of GDP.

In the first half of 2021, the NBP maintained monetary support for the economy – stabilized interest rates at a record low level, pursued operations under the QE programme, and preferred the fundamental undervaluation of the PLN. In reaction to the rapid acceleration of price increase and in order to prevent the “de-anchoring” of inflation expectations, the Monetary Policy Council (MPC) decided in October on the first interest rate increase since 2012. This move was the first in a cycle of increases as a result of which the NBP increased its reference rate by 1.65 p.p. to 1.75% in 2021.

More increases followed in January and February 2022 – as a result the MPC determined the core NBP interest rates at the following levels: Lombard 3.25%, bill discount 2.85%, bill rediscount 2.80%, reference 2.75% and deposit 2.25%. According to MPC declarations, further interest rate increases should be expected with the target level of the reference rate at 3.5-4.0%.