Poland Macro Weekly: New government and what’s next?

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TOP MACRO THEME(S):

• Stable inflation with disinflationary background (p.2) – After a minor upward revision by Statistics Poland, CPI inflation in November remained stable, at 6.6% y/y. Core inflation was a main source of a downward pressure on the CPI, which was offset by an increase in food and fuel prices.

WHAT ELSE CAUGHT OUR EYE:

• Tusk was granted a vote of confidence by the Polish Sejm. Based on the content of the prime minister’s exposé we estimate that the direct additional cost (against the draft budget bill) of the announced proposals amounts to approx. PLN 42 bn, while the net effect on fiscal deficit equals approx. PLN 38 bn (the difference stems from assumed boost in tax revenues). Flagship proposals include 1) a 30% pay rise for teachers (at least PLN 1500) and 2) a 20% pay rise for public sector employees; 3) mothers having returned to work after maternity leave shall receive a monthly payment of PLN 1500 until a child reaches the age of 3; 4) “holiday break” (withdrawal) from social security contributions for entrepreneurs. All of the changes will come into force from January 1^st. D.Tusk also announced a quick delivery of financial resources from the Recovery and Resilience Fund and a continuation of rearming of the army, while respecting existing contracts.

The pace of future fiscal consolidation may be slightly slower than we previously assumed, however, the overall impact of presented proposals on public finances will be lower than we estimated based on the information gathered during the election campaign. New Minister of Finance, A.Domanski, announced that the deficit target for 2024 will be different than in the September draft where a PLN 164.8 bn deficit was assumed. The first reading of the budget draft for 2024 is scheduled for Dec. 21^st.

• CAB continued to improve and the surplus increased to 0.8% of GDP after Oct. Reaching a surplus of 1.0% by the end of 2023 seems under no threat.

THE WEEK AHEAD:

• After political events the focus will shift to the macroeconomic data. A full range of monthly data should confirm that economic recovery is getting more widespread (details in the calendar on p.3).

NUMBER OF THE WEEK:

• 47% – general government debt in relation to GDP after 3q23, by 0.3 pp higher than in 2q23 and by 0.6 pp lower than at the end of 2022.

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