Poland: Social and economic crisis intensifies as inflation surges past 25-year highs


In Poland, the social and economic situation continues to deteriorate. The effects of high interest rates, the war in Ukraine and inflation, which has exceeded 25-year highs, threaten to plunge the country into a deep recession.

Inflation, already 8.6 percent at the end of last year, has climbed to nearly 18 percent despite a government “inflation shield.” Inflation in many other eastern and southeastern European countries is even higher. Even so-called core inflation, which does not take into account the strongly fluctuating prices of food and energy, has exceeded the symbolic 10 percent level.

Polish miners at the Wujek mine in Katowice [AP Photo/ Czarek Sokolowski]

Poland is not a member of the euro zone. The Polish central bank has raised the primary interest rate in steps to 6.75 percent. This is significantly higher than the ECB’s prime rate, which was most recently 1.25 percent. The Polish central bank has recently refrained from further interest rate increases as the rate hikes to date have already caused a significant economic slump.

Fixed interest rates are rare in Poland, so interest rates on existing loans are rising and new investments are becoming more expensive. To date there have been only limited declines in in the sale of consumer goods, but this is mainly due to the high number of Ukrainian refugees (2.6 million according to the UNHCR) currently living in Poland.

A look at the construction sector in particular reveals how devastating the impact of rising interest rates on the Polish economy have been. Compared to the previous year, a drastic 46 percent decline in new residential construction was recorded in August. Since many Polish companies lease their vehicles and machinery, they are also faced with rising costs.

The International Monetary Fund (IMF) has again cut Poland’s growth forecasts for this year and next: to 3.8 percent for this year and to 0.5 percent for 2023. According to the rating agency Moody’s, Poland’s GDP will shrink by 0.2 per cent year-on-year in 2023.

Pawel Borys, president of the Polish Development Fund, posted a gloomy forecast on Twitter. After returning from the IMF and World Bank annual meetings, he wrote that the mood was “as bad as during the 2009 and 2012 crises.” Borys believes that a recession in Germany and Italy will also rebound onto the Polish economy and lead to further growth in unemployment and public debt.

For Poland, the depreciation of the zloty (PLN), which in the last year dropped in value from PLN 3.9 to PLN 5 per dollar, means a rise in the price of imported products, especially from the US, where Poland has signed multibillion-dollar arms purchases. Many Polish companies pay for imported raw materials and components from the Far East in dollars and accept payment for the export of finished products to Western Europe in euro, which “shrinks margins very quickly” due to the dollar’s “stronger position,” as Piotr Soroczyński, chief economist of the Polish Chamber of Commerce, commented.

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