13:16 6 March 2023
Post by: WBJ

A year of challenges for Poles

Inflation, recession, elections – these are the keywords for 2023 in a nutshell. Unfortunately, the not very optimistic forecasts for the Polish economy may be of little importance compared to the upcoming election.

A year of challenges for Poles

The result will be crucial for the country's future, as it will decide in the long term which institutions will prevail. 

by Sergiusz Prokurat

We like to know what's about to happen, don't we? It gives us a sense of being in control of our own destinies. After a temporary post-Covid revival, we have been facing many challenges. The Organization for Economic Cooperation and Development (OECD) has prepared a forecast entitled "Confronting the crisis," which contains an assessment of the global economic situation and member states, including Poland. The OECD predicts that global economic growth will slow to 2.2% in 2023. Even though OECD analysts expect Poland to face high inflation, growing unemployment, and further increases in interest rates next year, it doesn't need to end like this.

During the COVID-19 pandemic, it seemed that it could not be worse. However, according to a GfK survey, as many as 60% of Poles believe that their financial situation has deteriorated during 2022. Uncertainty is growing, which harms the economy because people inundated with disturbing information refrain from buying furniture, cars, or apartments. The most critical challenges in Europe include inflation, a potential escalation of Ukraine's war with Russia, a global recession, a possible increase in unemployment, and wage increases below inflation. In mid-December, the European Central Bank assumed that inflation in 2023 would fall to 6.3% from 8.4% in 2022. Significant increases in prices continue in Germany and Italy, as well as in France and Spain. Inflation will start to slow down in the second half of the year. According to the forecasts of the National Bank of Poland, the trend in Poland should be similar, contrary to OECD predictions. In the first half of the year, inflation will still be high. Only in the best possible scenario, in the second half of 2023, might it fall below 10% and gradually decrease. However, it will not be the case that one day we will wake up and there will be no more inflation. Unfortunately, it will be a slow and gradual process.

On the other hand, there is no reason to expect an increase in the unemployment rate in Poland – perhaps by only about 1 percentage point – political decisions to choose higher inflation over higher unemployment result in a poorer society. The unemployed group can be loud and visible, which is not something the ruling party is keen to face in the election year. Contrary to the situations we hear about in the US, redundancies will be a last resort in Poland due to the structural shortage of employees, resulting primarily from unfavorable demographic trends that are taking place not only in Poland but also in most European countries. As a result of the slowdown in the labor market, recruitment will freeze, and wage growth will be limited. Average nominal wage growth will remain below inflation.

Unfavorable conditions, higher interest rates, and higher inflation, which invisibly reduce the value of savings, mean many challenges for investors, borrowers, and ordinary consumers – which means different problems for everyone. For example, as consumers, we usually pay attention to the price of products before the purchase. Unfortunately, checking the price will not protect us from overpaying in the store. It's worth checking labels to ensure we are not falling victim to shrinkflation, which affects product downsizing. Reducing the volume of the product or using other forms of impoverishment of the product while maintaining the same price will be visible in 2023. A famous example is the changing weight of a block of butter. Once a standard block weighed 250 g, then we became accustomed to 200 g. Now recently more and more producers are downsizing butter to 180 g.

Two fundamental events will impact the forthcoming year in Poland. In 2022, the world was irrevocably changed by Russian aggression, and it is not yet known whether it will not shake the world again; the second event is the elections in Poland, scheduled for Autumn 2023. They will decide whether Poles will reject the rule of PiS or give the party a third term. We may be witnessing specific election promises that will increase inflation – depending on the scale of the "gift" that the government is preparing. The upcoming elections in 2023 in Poland will be won by the party that manages to convince Poles that it can guarantee less uncertainty - greater security is beyond anyone's control at this point. The long-term struggle over whether Poland should be liberal or social has ceased to be valid since 2015. In politics, only gifts for society count – social benefit programs like the Family 500+ program, credit holidays, and 13th and 14th retirement pensions. Politicians no longer want to compete over ideas but rather with social gifts. 

The 2023 elections will decide whether the institutions of social Poland – somewhat unwilling towards the EU, entrepreneurship, or religious and sexual dissimilarity – will strengthen. In the worst scenario, we may even witness a long-term "peron-ization" in thinking about the economy in Poland. The term comes from the name of a famous Argentine politician. In the 1950s, when Juan Peron, the leader of the socialist movement, took over the government in Argentina, he willingly nationalized the economy, supported state-owned companies with money, and pumped public funds into economic projects planned by politicians. The heads of large companies were elected not by managers but by people who obeyed the president's administration. What happened next? In the long term, state-owned companies ceased to be effective, resulting in inflation, currency depreciation, high budget deficits, difficulties repaying foreign debts, and finally, the economy's collapse and bankruptcy. The state budget generously financed social goals, but the state restricted democracy in return. Although Peron died a long time ago, it is still claimed that Argentina is ruled from "Peron's coffin" – his successors who continue to pursue a policy of social gifts because it is a path that is not easy to get off of. Considering the hypothetical direction in which Poland is heading, this comparison does not seem so improbable.  

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