Poland's GDP Set for Growth in 2025 as EU's Fastest Economy

BY Benzinga | ECONOMIC | 12/03/24 04:02 PM EST

Poland’s GDP is set to expand further in 2025, cementing its position as the European Union’s (EU) fastest-growing economy.

Polish economic growth is projected at 3.7% next year, supported by private consumption and investments_,European Commission (EC) data showed. This expectation expands a strong rebound from 0.2% in 2023 to just over 3% in 2024, according to the forecast on November 15.

A strong financial sector, paired with tight labor markets, has also resulted in significant wage growth, driving increased consumer spending.

<figcaption class="wp-element-caption">Real GDP growth, 2021-2026, Source: World Bank</figcaption></figure>

“Poland is one of the great economic growth success stories in the world over the last 30 years,” Geoff Gottlieb, IMF senior regional representative for Central, Eastern and South-Eastern Europe, said.

Poland's GDP outperforms the EU and Germany, Europe's largest economy. The EC expects the EU GDP to grow by a mere 0.8% this year and 1.5% in 2025. German GDP will contract by 0.1% in 2024 from a 0.1% expansion previously, the second consecutive year of negative growth, the EC said.

Consumption-Led Recovery is Driving Poland's GDP

The IMF staff wrote in a report published on October 17 that "a consumption-led recovery is underway" in Poland. It added that the "outlook is further supported by recently unlocked NextGen EU Funds (NGEU)."

NextGen EU is a financial package allocated to Poland from the EU’s “NextGenerationEU” recovery plan to help member states recover economically from the COVID-19 pandemic. The package funds investments in green energy, digitalization, and social cohesion.

In the second quarter of 2024, Poland recorded the EU's largest GDP growth at +1.5%.

<figcaption class="wp-element-caption">Quarterly GDP growth by EU country, Q2 2024, Source: Eurostat</figcaption></figure>

Investment Key Driver of Poland's GDP Growth

Poland's corporate sector wages increased by 10.2% year-on-year (YoY) to $2,042 (PLN 8,316.57) in October 2024, following a 10.3% growth in the previous month and beating market expectations of a 10.1% increase.

<figcaption class="wp-element-caption">Real Wage and Salary Enterprises, %YoY, Source: ING</figcaption></figure>

The average business employment decreased by 0.5% YoY in October, the same as in September. Despite this setback, Poland’s labor market remains solid, with unemployment remaining near record lows.

In 2025, EU-funded public investment is also forecasted to be a key driver of Poland's GDP growth. In February, the EU unblocked around $147 billion (PLN 600 billion) for Poland from the Cohesion Policy and the National Recovery Plan. This is set to stimulate the Polish economy and boost investments.

The funds will help accelerate the green and digital transformation in the economy, increasing energy security and the use of modern technologies.

Poland GDP Growth Attracts Foreign Investments

Poland's strong economic performance has attracted international investments. Microsoft Corp. opened in 2023 a $1 billion cloud region around Warsaw. It consists of three physical locations with one or more data centers.

"Microsoft's investment in Poland will accelerate our country's transformation into a technology hub for the Central and Eastern European region," Prime Minister Mateusz Morawiecki said at the time.

Microsoft has also launched an extensive AI training program in Poland, which aims to equip one million individuals with essential AI competencies by the end of 2025.

"Poland found the perfect blend of East and West," Ole Lehmann, the founder of The AI Solopreneur, wrote on X. "They combined: Western innovation without the bureaucracy" and "Eastern work ethic & traditional values without authoritarianism."

Challenges to Poland's GDP Growth

Polish industrial production remained close to stagnant in Q3 (0.6%YoY growth after +0.8%YoY in 2Q24) while construction remained in a recession. A decline in domestic retail trade added further pressure on the economy.

Poland, though, has little room for significant interest rate cuts next year, with wages and consumer prices buoying inflation and economic growth accelerating, the country's deputy central bank chief, Marta Kightley, said. Polish inflation eased in November to 4.6% YoY from 5% YoY in October.

"The decline in inflation in November is a temporary phenomenon," ING wrote on November 29. "We project that it will rise in the first quarter of 2025, which will prevent the Monetary Policy Council from beginning its monetary easing cycle until then."

This has significantly slowed real wage growth, which dropped from 8.5% YoY to 6.0%. Higher electricity and gas bills may limit resources available for other household expenditures.

What Future Holds for Poland's GDP

Despite recording the fastest GDP growth in the EU and a record-low unemployment rate, labor shortages paired with low fertility rates and an aging population could pose a future threat to the Polish economy. In the past 30 years, Poland's birth rate decreased by 40%, standing at 1.33 in 2024.

<figcaption class="wp-element-caption">Crude rates of population change, 2021-2023, Source: Eurostat</figcaption></figure>

While the total EU population increased in 2023, the population fell in 7 countries, Latvia (-5.9) and Poland (-3.6), recording some of the highest decreases.

In response to labor market gaps and the need to attract foreign workers, Poland’s government announced its first comprehensive migration strategy in October, a step toward addressing demographic challenges.

Many entrepreneurs are concerned that stricter immigration policies will make it harder to hire workers.

Disclaimer:

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