Polish Economy to Slow Down Sharply as Russian Invasion of Ukraine Impedes Post-Pandemic Recovery in Europe

WARSAW, October 4, 2022 – Poland’s economic growth is expected to slow down in 2023 more markedly than initially expected because the ongoing war in Ukraine has dimmed prospects of a post-pandemic economic recovery across Europe, says the World Bank’s Economic Update for the region, released today.

The Polish economy may grow at 1.6 percent next year when compared to 4.0 percent anticipated for 2022 and 3.6 percent forecasted in the previous edition of the report published in spring.

Ukraine’s economy is now projected to contract by 35% this year although economic activity is scarred by the destruction of productive capacity, damage to agricultural land, and reduced labor supply as more than 14 million people are estimated to have been displaced. According to recent World Bank estimates, recovery and reconstruction needs across social, productive, and infrastructure sectors total at least $349 billion, which is more than 1.5 times the size of Ukraine’s pre-war economy in 2021.

“Russia’s invasion of Ukraine has triggered one of the biggest human displacement crises and exacted a heavy toll on human and economic life,” said Anna Bjerde, World Bank Vice President for the Europe and Central Asia region. “Ukraine continues to need enormous financial support as the war needlessly rages on as well as for recovery and reconstruction projects that could be quickly initiated.”

The global economy continues to be weakened by the war through significant disruptions in trade and food and fuel price shocks, all of which are contributing to high inflation and subsequent tightening in global financing conditions. Activity in the euro area, the largest economic partner for emerging and developing economies (EMDEs) of Europe and Central Asia, has deteriorated markedly in the second half of 2022, due to distressed supply chains, increased financial strains and declines in consumer and business confidence. The most damaging effects of the invasion, however, are surging energy prices amid large reductions in Russian energy supply.

Downgrades to growth forecasts for 2023 are broad-based across EMDEs in Europe and Central Asia as the regional outlook is subject to considerable uncertainty. Prolonged or intensified war could cause significantly larger economic and environmental damage and greater potential for fragmentation of international trade and investment. The risk of financial stress also remains elevated, given high debt levels and inflation.

A supplement to the report examines the impact of the energy crisis. While global prices for oil, gas and coal have been rising since early 2021, they skyrocketed after Russia’s invasion of Ukraine, sending inflation to levels not seen for decades in the region. This unprecedented crisis has implications for consumers and Governments alike – constraining fiscal affordability; firm productivity; and household welfare.

“Higher energy and food prices will weigh on household demand and will affect heavily poorer segments, who devote 50 percent of their monthly spending on food and energy,” said Cristina Savescu, World Bank senior economist for the EU countries. “While measures under the Anti-inflation Shield, 14th month pension, and energy subsidies will soften this negative impact, the share of the population at risk of poverty may remain elevated at 1-2 percentage points above 2021 levels in coming years.”

The report also includes a special focus on the region’s social protection systems, which have played a critical role in supporting households and businesses during the pandemic and, more recently, from the fallout of the war in Ukraine.

Policy interventions to building social protection systems for the future can include a combination of (i) guaranteed minimum income support designed to protect individuals and households from adverse shocks, (ii) regulatory reforms that gradually remove restrictions on firms’ hiring and dismissal practices, and ultimately support the creation of formal jobs in the private sector and a reduction in informality; (iii) enhanced coverage of and protection for vulnerable groups; and (iv) digitalization for improved quality and quantity of services provision.

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