Poland’s incomplete use of KPO funds as downside risk for GDP path, says NBP’s Kotlowski
Poland’s incomplete absorption of EU funds under the national recovery plan KPO funds poses a downside risk to the country’s GDP outlook, the head of NBP's Department of Economic Analysis and Research Jacek Kotlowski told a presentation of Poland's central bank July projection.
"Within the March projection, our expected GDP outlook has not been significantly revised. We have slightly lowered the rate of economic growth this year by 0.1 percentage points," Kotlowski said.
"(...) Firstly, the GDP reading for the first quarter surprised slightly downwards, while we also have heightened uncertainty. These are the two factors that have caused this growth path to be slightly lower. On the other hand, in the longer projection horizon, we have decided to raise the GDP growth outlook slightly. Primarily because of the 50 basis points cut in interest rates in May," he added.
The head of the Department of Economic Analysis and Research at Poland's central bank said that NBP expects the economy to improve this year compared to the previous one.
"The reason is first and foremost the inflow of EU funds both from the new financial perspective, but also from the national recovery plan KPO. It will raise the path of investment," Kotlowski said.
He continued that the NBP assumes that in 2025, the absorption of EU funds will increase by more than PLN 40 billion (EUR 9.4 bln) due to last year, i.e. by more than 70 percent.
"(...) We see some downside risk. In the projection, we have assumed full utilisation of the KPO funds (...) by the third quarter of next year. Of course, there is always a downward risk associated with the possible utilisation of the entire amount," Kotlowski pointed out.
According to the latest projection, Poland's GDP growth will reach 3.1 percent in 2026 and 2.5 percent in 2027.
Kotlowski pointed out that according to the projection, the demand gap will gradually close this year due to this higher economic growth rate. On the other hand, in the further horizon, it will again reach negative levels.
The CPI path in the latest projection averages 3.9 percent, 3.1 percent and 2.4 percent respectively in 2025-2027.
"We assume that inflation in the third quarter, that is, de facto already in July, will return to the band of deviations from the inflation target. We assume that for the third quarter, this inflation will be 2.9 percent," Kotlowski stated.
However, as he stressed, in connection with the assumption of the unfreezing of energy prices from October, Poland's central bank assumes an increase in inflation to 3.6 percent in the fourth quarter of 2025, followed by the return to the band of deviations from the target and the CPI remaining in this band actually until the end of the projection horizon.
"We assume that current electricity tariffs are maintained, resulting in a 0.6 percentage points increase in the CPI from October. (...) If the unfreezing of energy prices did not take place, possibly if tariffs were reduced, then of course inflation at the end of the year could be lower," he added.
In terms of core inflation, Poland's central bank NBP expects the scale of disinflation to be relatively small in 2025.
Kotlowski said that the projection does not take into account the EU's planned introduction of ETS2 system from 2027, which would bump up inflation in Poland by up to 2 percentage points.
"There is a more serious risk to inflation hanging over us, a more long-term risk. This is the introduction of ETS2 from 2027. The impact on inflation is very strong and negative, driving the CPI up," he noted.
Kotlowski explained that NBP did not include the introduction of ETS2 in the projection, because there is an EU directive, whereas there is no law on a national addition.
"The second reason is that we do not actually know what the price of this will be," he admitted.
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