Poland’s GDP expanded 5.7% in 2021 after a pandemic-driven contraction of 2.5% the preceding year, the country’s statistical office GUS said on January 31.

The fastest growth since 2007 is broadly in line with expectations, which analysts raised a bit after very good fourth quarter data. Household consumption and investment drove the headline result and the carry-over effect from the final months of 2021 will push growth upward in early 2022.

“The economy recovered faster than most other European economies from the pandemic. While we expect the pace of the recovery to slow over the next couple of months, we still think that Poland’s economy will continue to outperform its peers this year,” Capital Economics said in a comment on the GUS figures.

The slowdown to come later in the year will be due to inflation, the increased cost of living and for operating businesses, as well as savings running out after pandemic-driven accumulation, analysts say.

“The main risk factors are related to increased energy prices as well as higher interest rate cost that might limit the disposable income of households and thus drag consumption down,” Erste said.

“On the other hand, the ‘anti-inflation shield’ and expansionary fiscal policy might offset some of those negative effects at a cost of the prolonged period of elevated inflation,” the Austrian bank added.

Other risks in 2022 include a further delay in acceptance of the Polish recovery plan that might hamper investment growth. 

The upcoming ruling of the Court of Justice of the European Union on the conditionality mechanism, due on February 16, could shed some light on the prospects of the Polish recovery plan and EU funds as a whole.

The conditionality mechanism ties reception of EU funds to adhering to the rule of law, which the EU says Poland has a problem with because of its judicial reforms that undermine courts’ independence and impartiality.

Still, growth in 2022 will be robust, analysts say. Erste puts it at 4.6% while Capital Economics expects an expansion of 4.5%-5%.

Broken down by main segments of the GDP, domestic demand increased 8.2% in 2021 vs. -3.4% in 2020, adding 7.6pp to the headline figure. 

Private consumption benefited from pent-up demand, solid labour market and high social transfers as it rebounded strongly and increased 6.2% last year after falling 3% in 2020. Thus, household consumption added 3.4pp to the overall GDP growth in 2021.

Investment improved significantly by expanding 8% in 2021 – versus a fall of 9% in 2020 - contributing 1.3pp to the headline figure. 

A positive contribution also came from inventories that added 2.7pp to the overall growth in 2021. The net export proved its anti-cyclical nature as it took 1.9pp off the headline GDP, GUS data showed.

GDP data do not change much in the outlook for Poland’s monetary policy. Despite the expected slowdown in the expansion rate, “the economy is running at a full-speed and further tightening of monetary conditions will be required in order to avoid the overheating of the economy,” Erste wrote.

A hike of 50bp to bring the central bank reference rate to 2.75% is all but certain next week. As inflation will most persist well into the second half of the year, more hikes are likely to end the current tightening cycle at 4%.