Poland’s economy continues to expand at a solid pace amid subdued inflation and rising downside risks to outlook, the International Monetary Fund said in a new report.
In an annual review of the country’s economy, the Washington-based lender said, “Poland continued its convergence with the EU, growing well above most of its peers.”
“However, increased external risks and recent policy initiatives have weakened investor sentiment, and together with long-term structural challenges could slow down growth and convergence,” the IMF said.
The lender expects Poland’s growth to remain strong this year and accelerate to close to 4 percent in 2017, on the back of strong private consumption, opening a positive output gap.
This should help gradually nudge inflation toward the lower bound of the target band of 1.5-3.5 percent by end-2017, the report said. Inflation is well below the target due to low imported inflation.
External risks faced by Poland’s economy include a marked slowdown in emerging markets, accompanied by financial market volatility, and the possible spillover from the protracted growth slowdown in the euro area, through trade and financial linkages, the IMF said.
Domestic risks include a weakening of some institutions and policies or fiscal slippages that could worsen investor sentiment and hinder economic expansion. A rapidly aging population and the persistent income disparities between the rich west and lagging east are among the long term domestic risks.
“Strong policies and institutions are essential to mitigate these risks and to support sustainable and balanced growth,” the report said.
“With a closed output gap but continued low inflation, the near-term policy mix should be carefully calibrated to maintain an accommodative monetary policy stance, while continuing gradual fiscal consolidation.”
The current accommodative monetary policy stance is appropriate, the IMF noted, pointing out that deflation appears not to have had adverse balance sheet effects, thus far, and longer-term headline inflation expectations remain within the tolerance band.