Consumer confidence in Poland returns near pre-pandemic levels

When 2023 began, economic sentiment in Poland was very pessimistic. Among the 20 legacy countries, its January National Index score of 36.5 was higher than only Hungary, Turkey, and Japan. While there wasn’t much optimism in any part of the economy, things were especially bleak in terms of how people felt about their current situation, from purchasing power to their ability to invest in the future.

However, a switch flipped in the spring. Sentiment in Poland started to rise; between April and August, the country’s National Index gained about eight points. And after a two-month lull, Poland’s index gained nearly six points this month. November’s reading (49.0) is the country’s highest since March 2020, in the early days of the pandemic, and is a whopping 12 points higher than it was at the beginning of the year.

What caused this stark turnaround?

Well, that’s a two-part answer: the results of the most recent elections and the nearly year-long decline in the inflation rate have both played a major role in the increased consumer confidence in Poland.

Ousting of Law and Justice party results in increased economic optimism

This month’s swing can likely be attributed to the results of last month’s elections, which saw the Law and Justice party (also known as PiS) lose its majority to multiple pro-European Union (EU) parties. On the Monday immediately following the election, the Polish stock market rose by more than 4%, and the country’s currency, the zloty, strengthened against the Euro by nearly 2%.

The EU and PiS were consistently at odds, so much so that the EU blocked Poland from accessing both 35 billion euros in recovery funds and 76 billion euros in cohesion funds that are used to raise the standard of living in less wealthy European regions. The hope is that the new government can broker a deal to allow Poland to use these funds.

This month’s six-point increase in consumer confidence shows Polish consumers are pleased with the outcome of the election and their potential new government. If they are able to unlock access to EU funds, we could see another surge in confidence.

Economic sentiment increases as inflation begins to ease

While the recent elections explain last month’s sharp increase in economic sentiment, what explains Poland’s rise throughout the rest of 2023, particularly from April to August?

The easy answer: inflationary pressures eased. The inflation rate reached a staggering high of 18.4% in February. It then fell for seven consecutive months. By September, inflation was only at 8.2%.

One source of this decline in inflation comes from food prices. From February to August, the inflation rate for food was nearly cut in half (24% to 12.7%).

Add in a drop in the unemployment rate from 5.5% at the beginning of 2023 to 5% by the end of the summer, and those are likely the biggest drivers of increased optimism in Poland.

Economic sentiment in Poland is at its highest since the early days of the pandemic. The next few months, which will involve forming new leadership in the government and repairing the country’s relationship with the EU, will be critical in continuing the country’s economic recovery.

Is the increased optimism in economic sentiment temporary or sustained? As 2023 closes and 2024 enters, we will see.