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Country Report 2019 PolandJoost Korte, DG EMPL
Marc Lemaître, DG REGIO
Benjamin Angel, DG ECFIN
Warsaw, 7 March 2019
2019 European Semester
Joost Korte, DG EMPL
Current economic trends in Europe
3
Real GDP and employment growth in the EU
2019 European Semester
• Country reports published on 27 February
• Analytical parts consulted with the Polish authorities before publication
• Stronger link with the Multiannual Financial Framework
• Focus on investment needs
4
Stability and Growth Pact
Macroeco
nom
ic I
mb
ala
nces P
roced
ure
5
6
# Country-specific recommendation Evaluation
1 Ensuring fiscal framework compliance, improving efficiency of public spending.
Limited progress
2 Increasing labour market participation and removing obstacles to more permanent types of employment.
Ensuring sustainability and adequacy of the pension system.
No progress
3 Strengthening the innovative capacity of the economy.
Ensuring effective public consultations in the legislative process.
Limited progress
Poland has made limited progress in addressing the 2018 CSRs
Economic outlook, investment and sectoral policies
Benjamin Angel, DG ECFIN
• Poland’s long-run economic prospects depend on economy’s capacity to move towards knowledge-based economy producing advanced products and services
• Increasing investment to support innovation, education and skills development, better infrastructure and cleaner energy are crucial for long-run success
8
Key challenge and investment needs
Poland is enjoying good economic times
• Uninterrupted fast growth over the last decade; growth to remain solid in the short term
• Household consumption and gradually increasing investment (mainly public) are main drivers
• Best labour market situation in 30 years
• No short-term risks to fiscal sustainability
9
Cumulative GDP growth, 2017-2018E
1
3
5
7
9
11
13
15
IEM
TR
O PL SI
LV
HU
EE
CY
LT
SK
CZ
BG
HR
ES
NL
AT FI
PT
LU
EU
SE
FR
DE
EL
UK
BE
DK IT
%
Long-term prospects call for structural reforms
• Favourable economic environment offers unique opportunity to address structural challenges:
• Decline in working-age population
• Skill shortages & innovative capacity of the economy
• Investment climate: quality of institutions, policies and regulatory environment
10
Estimated composition of potential growth
-1
0
1
2
3
4
5
08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23
TFP Capital Labour
pp forecast
Role of investment
• Overall, investment has been weak since 2016
• In GDP-ratio terms, in 2009 – 2015 Poland used to be above the EU average, then declined strongly
• Public investment with large role, significant contribution from EU funds
• Private investment remains subdued, especially after 2015
• Low level of corporate investment
• Result of increased uncertainty and certain structural factors
11
Private investment (% GDP)
13
15
17
19
21
23
25
27
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
18
19
20
EU PL DE CZ SK
% GDPforecast
No short-term fiscal risks
• Narrowing fiscal deficit, driven by: economic cycle, labour market developments and better tax compliance
• Declining public debt ratio
• Less optimistic picture in structural terms
• Short- and medium-term path of the fiscal deficit uncertain following the announcement of a new social and tax package
12
2017/2018 change based on data for 3 quarters
Yearly change of tax-to-GDP ratios, 2016-2018
0.0
0.2
0.4
0.6
2016 2017 2018
VAT CIT SSC PIT
p.p.
Fiscal sustainability challenges exist
• Ageing population: drag on sustainability
• Pension system adequacy
• Health and long-term care
• The role of effectiveness and efficiency of public spending will be increasingly important
13
Proportion of population aged 65+
0
5
10
15
20
25
30
35
2015 2020 2030 2040 2050
EU PL
%
Financial sector is overall solid
• Banking sector is overall sound
• Well capitalised and profitable
• Stable modest lending expansion
• FX mortgage loans gradually paid off, but legislation uncertainty remains
• Independent financial supervision is crucial
• The state controls about one third of the banking sector and the largest insurer
• Stronger financial-sovereign links
14
Lending developments
0
2
4
6
8
10
12
14
16
Jan
12
Jul 12
Jan
13
Jul 13
Jan
14
Jul 14
Jan
15
Jul 15
Jan
16
Jul 16
Jan
17
Jul 17
Jan
18
Jul 18
Total privateNon-financial corporationsHouseholdsMortgage credit
% y-o-y
Investment: innovation
• Poland’s innovation performance remains modest
• Science-business links remain underdeveloped
• Higher education reform addresses some of the challenges
• Innovative activity of firms is hampered by some barriers
• e.g. limited access to highly qualified specialists
15
Poland’s ranking in Innovation Scoreboard, 2010 - 2017
EU BE
BGCZ
DKDE
EE
IE
EL
ES
FR
HR
IT
CY
LV
LT
LU
HU
MT
NL
AT
PL
PT
RO
SI
SKFI
SE
UK
-0.08
-0.06
-0.04
-0.02
0.00
0.02
0.04
0.06
0.08
0.10
0.12
0.0 0.2 0.4 0.6 0.8
Absolu
te c
hange E
IS (
2010 -
2017)
Member States EIS 2017
Investment: transport & ICT
• Road network in Poland has improved significantly with a key role of EU funds
• …but road safety remains a concern
• Progress in modernising the railways is slower
• Fast internet access developed quickly, but broad access to ultra-fast internet is a challenge
16
Network of high-speed roads until 2023
Investment: clean energy & environment
• Electricity generation dominated by coal
• Including recently built power plants
• Development of RES negatively affected by regulatory changes
• Investment to improve the energy efficiency crucial for containing demand for energy and to limit GHG emissions
• Limited interconnectivity adds to electricity price tensions
• Air pollution remains a concern
17
Gross electricitygeneration by fuel (TWh), 2017
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
EU PL
Solid fuels
Renewables
Gases
Nuclear
Other
Regulatory climate & public administration
• General business environment is favourable
• Compliance with certain administrative requirements is burdensome and may prolong investment processes
• Fast-track legislative procedures without proper public consultation feeds uncertainty
• Rule of law
18
Ease of Doing Business - Poland
60
62
64
66
68
70
72
74
76
78
80
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
DB10-14 methodology
DB15 methodology
DB16 methodology
DB17-19 methodology
in a scale from 0 to 100
Labour market, education and social policies
Joost Korte, DG EMPL
Labour market outcomes continue to improve
• Rising employment, accelerating wages
• Unemployment rate at the lowest level in recent history
• Shortage of skilled labour
20
Employment, wages, unemployment rate
-2
0
2
4
6
8
10
12
13Q
1
13Q
3
14Q
1
14Q
3
15Q
1
15Q
3
16Q
1
16Q
3
17Q
1
17Q
3
18Q
1
18Q
3
Employment growth y-o-y
Nominal wage growth y-o-y
Unemployment rate
%
But some structural challenges persist
• Low participation of certain groups:
• women
• older workers
• people with disabilities
• less-skilled people
• Labour market segmentation
21
* Provisional data
Enrolment in formal childcare,children below the age of 3
0
5
10
15
20
25
30
35
40
PL EU
2016 2017*
%
Education and skills: strengths and weaknesses
• Good PISA results and low early school leaving
• Low attractiveness of the teaching profession
• Reforms in higher education and VET
• Low participation in adult learning
22
Adult participation in learning
* Provisional data, % of population aged 25 to 64
0
2
4
6
8
10
12
PL EU
2017 2018*
%
Social protection and healthcare
• Poverty and income inequalities continue to decrease
• Structural challenges in social policy
• Future pension adequacy is a key challenge
• Healthcare affected by low public financing, staff shortages and misallocation of resources
23
Key poverty indicators, general population
0
5
10
15
20
25
30
35
40
45
50
05 06 07 08 09 10 11 12 13 14 15 16 17
At-risk-of-poverty-or-exclusion-rate
At-risk-of-poverty-rate
Severe-material-deprivation-rate
% of population
Regional dimension
Marc Lemaître, DG REGIO
Regional dimension
• All regions have been developing fast for the last decades
• Poland's success in the catching-up process is based on polycentric growth
• However, strong disparities persist in spite of the outstanding socioeconomic progress. They are even more pronounced at sub-regional level
25
Change in regional GDP per capita in PPS relative to the EU average (2006-2016),
depending on the 2006 starting point
-40
-30
-20
-10
0
10
20
30
40
0 50 100 150 200
change in % points
% of EU average in 2006
Regional dimension
• Urban-rural divide remains wide
• Large cities are the primary drivers of development while smaller cities struggle to adapt to rapid economic and technological transitions
• While disparities result from long-lasting structural issues, a targeted policy may help to reduce them
26
Urbanisation rate and regional GDP in PPS per capita, 2016
0
20
40
60
80
100
120
40 50 60 70 80
% of EU GDP average in 2016
% of population aged over 15
years living in urban areas
Poland
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