Poland is experiencing a rapid rise in household disposable incomes, aided majorly by its government’s moves to boost minimum wages after the pandemic caused meteoric rises in the cost of living.
The country saw the Organisation for Economic Co-operation and Development (OECD)’s largest increase in real household income per capita in the first quarter of 2024, the latest data by the organisation has revealed.
In the ‘Growth and Economic Well Being’ data released by OECD, Poland recorded a 10.2% increase in real household income per capita in Q1 compared to the previous quarter, primarily owing to increases in compensation of employees, social benefits other than social transfers in kind, and property income.
Property income especially more than tripled since the end of 2021 on the back of increased interest receipts due to higher interest rates.
The country thus far outpaced the grouping’s 0.9% growth in the metric implying a significant improvement in the country’s purchasing power, along with an improved standard of living.
It was also much ahead of increases experienced by G7 economies in the quarter.
Among G7 nations, while Italy saw the strongest increase of 3.4%, other nations like Canada, France, the UK and the US, saw significantly suppressed growth in the metric at below 1%.
The UK and US saw mild increases of 0.3% and 0.2%, respectively.
Most other OECD countries also recorded rises in real household income per capita in Q1 2024. In Greece, however, the income per capita declined by 1.9% although real GDP per capita grew by 0.9%.
Poland government’s plan to boost minimum wage aids growth
In June last year, the Polish government led by the then ruling Law and Justice (PiS) party announced a plan to increase the national minimum wage by more than 23%.
The plan came months ahead of national elections in the country wherein the party was seeking a third term in office.
The aim behind the move was to soothe the concerns of largely lower-income workers reeling under the rising cost of living (Poland’s double-digit inflation rate was among the highest in the EU at the time).
Under its plan, the monthly minimum wage was to rise to 4,242 zloty in January 2024, and 4,300 zloty in July 2024.
Further, soon after coming to power in October, the new government under the leadership of centrist party leader Donald Tusk announced it would increase teachers’ pay by 30% from the beginning of 2024 and public sector employees would get a raise of 20%.
Monthly gross minimum wage in Poland (in zloty), Source: Statista
The average wage in Poland rose by 14.7% year-on-year in the second quarter of 2024 – the largest increase in at least two decades – to reach 8,038.41 zloty (€1,864.63) per month before tax, new data from Statistics Poland (GUS), a state agency, showed.
In March this year, ING Think said real wage growth in February was the highest since the late 1990s.
Impact on inflation and economic forecast
Poland, much like other European countries witnessed significant spikes in inflation beginning 2021, with experts attributing the spikes to an increase in demand after pandemic lockdowns, supply constraints, pandemic fiscal and monetary stimuli and the Russian invasion of Ukraine.
According to Statista, the monthly consumer price index (CPI) in Poland peaked at 18.4% in February 2023 after rising since the beginning of 2021.
Annual inflation in Poland in 2022 amounted to 14.4%.In June last year, when the ambitious plan by the previous government was announced, the inflation stood at 11.5%.
Back then, the government’s move, economists feared would exacerbate the double-digit inflation.
However, inflation data since then seems to have belied the concerns.
Poland’s CPI inflation numbers came at 2.6% in June, close to the Poland central bank Narodowy Bank Polski (NBP)’s target of 2.5%.
Monthly CPI change in Poland, Source: Statista
Analysts expect inflation to rise from July, albeit mildly.
Adam Antoniak, senior economist at ING, Poland, said,
“June was the last month this year with CPI inflation around the National Bank of Poland’s target. We expect the headline inflation rate to rise above the upper limit of acceptable deviations from the inflation target in July, mainly due to the partial withdrawal of the energy shield. We estimate that increases in gas and electricity bills will drive up inflation by around 1.3-1.5 percentage points.”
The Polish Economic Institute forecasts inflation to hover around 4.0-4.5% in the second half of 2024 due to wage pressures and energy price increases.
However, overall, Poland seems to be on a path of recovery with the rapid rise in wages poised to play a significant role.
According to the European Commission’s economic forecast for Poland in May, real GDP growth is projected to rebound to 2.8% in 2024.
“Private consumption is expected to be the main growth driver, supported by rapidly rising wages, additional government social support boosting disposable income, improved consumer sentiment, and receding inflationary pressures,” it said.
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