Standard and Poor’s raised its outlook for Poland from stable to positive on April 13, while maintaining the country’s rating at BBB+. 

The raising of the outlook is based on expectations that Poland’s strong economic growth will continue in 2018 on the fundamentals of solid external demand and the overall resilience of the economy.

The boom is, however, unlikely to last long, according to S&P. The rate of economic growth will eventually retreat to long-term estimated potential, which S&P puts at 2%. The slowdown will be an effect of the shrinking workforce, wage pressures, and the uncertain global environment.

For now, however, Poland’s economic expansion is expected to last. Real GDP increased 4.6% in 2017, the highest result since 2011, and is set to expand around 4.5% in 2018, S&P notes.

Growth will benefit fiscal performance more than projected previously by S&P. The general government deficit will widen slightly by 0.5pp to 2% of GDP in 2018. 

That is below the target of 2.5% of GDP although growth in the deficit attests to upward pressure on expenditures. They are coming with the lowering of the retirement age, wage hikes in the public sector, and increases in public capital expenditure and social transfers as the government aims to secure victory in the local election later this year and national vote in 2019.

Still, fast economic expansion has allowed the government of Law and Justice (PiS) to secure an increase of tax revenue equal to around 0.5% of GDP thanks to tax administration reforms. It has kept the budget deficit in check as well. 

PiS also appears able to contain risks associated with economic overheating and not let its difficult relations with the EU negatively impact the inflow direct economic transfers, amounting to around 2% of GDP, claims S&P.

However, the government’s institutional reforms – weakening the independence and authority of the Constitutional Tribunal and other judicial bodies – could eventually lead to a worsening of Poland’s long-term growth performance. 

That could occur by “damaging potential investors' perception of property rights and the equal application of the rule of law,” S&P said.

“Broader institutional uncertainty may already explain the slower pace of recovery in private investment spending last year, and disappointing net FDI figures, which we estimate slipped below 0.4% of GDP last year, or less than one-quarter of the 2008-2014 average,” S&P noted.