The coming year promises to be a crisis. The global economy is facing a slowdown and many countries will go into recession or face a severe economic downturn. This, in turn, can have a negative impact on the labor market and an increase in unemployment.
Inflation will remain at a high level, although price momentum is expected to start to decline due to central bank efforts and weakening demand. What scenario awaits Poland? Listen carefully to the statements of the leading politicians of the ruling camp, led by Jarosław Kaczyński, president of PiS o the president of the National Bank of Poland, Adam Glapiński, suggests that they fear a sharp deterioration in the economic situation and the rising unemployment rate more than persistently high inflation.
Today, there are many indications that unemployment will not be a key problem in 2023 in the Polish economyand also the inflation problem at the end of next year will not be as bad as it is now.
Labor market resilience
At the moment, no crisis on the Polish labor market is yet visible, although economists are convinced that next year will bring a worsening.
Looking at the latest results of the Labor Force Survey (LFS), it can be seen that a slight cooling of the labor market is already a fact. The unemployment rate in the third quarter rose to 2.9%. from the historic low of 2.6% in the previous quarter. PKO BP economists point out that for the first time in two years we have seen a decrease in the number of employees on an annual basis and an increase in the number of professionally inactive people. However, the LFS data does not cover the majority of Ukrainians living in Poland, especially if their stay is temporary. Which, according to experts’ opinion, could prove that the actual employment picture is better.
Bank Millennium experts believe that the LFS data fits into the scenario of weakening demand for labor along with the decline in economic activity. This is shown by more and more data from the real economy, e.g. those relating to retail or industrial production.
“Over time, other labor market indicators should also confirm this picture. However, we do not expect unemployment to rise sharply this business cycleas companies will most likely adjust labor costs more due to the lack or less willingness to increase wages than due to the reduction in employment, especially of highly qualified employees, underline the Bank Millennium analysts.
For many months we have been one of the countries with the lowest unemployment rate in the EU.
Tranquility in between
The registered unemployment rate, calculated on the basis of labor office records, remained unchanged in October. Last month it was 5.1%.
“In October, the number of registered unemployed fell by nearly 6,000. up to 796,000 and for the first time since July 1990 it was below 800,000. October data shows the continuation of current trends: the number of newly registered unemployed is growing year on year, the number of cancellations is declining and the number of vacancies is almost 1/3 lower than a year ago.
“The labor market has stagnated and the demand for employees has decreased. At the same time, the demographic situation and the persistent shortage of employees in some sectors mean that we do not expect a significant increase in unemployment, despite the impending economic slowdown”, adds experts from the largest Polish bank.
The view that we are not in danger of a spike in unemployment is fairly common among economists, although there has been more media coverage of gang layoffs in large workplaces in recent weeks.
According to analysts at Santander Bank Polska, the coming months will show a higher unemployment rate, but by the end of 2023 it is expected to only increase to around 6%. BOŚ Bank experts are more optimistic. According to them, the end of this year will bring a slight increase in the unemployment rate to 5.2%, and December next year will end at 5.6%.
“The factor that, despite the weaker economic environment, will limit the extent of the decline in employment and the increase in unemployment next year is the structural effect of the constraints on the labor supply side. Until recently , one of the main obstacles to development was that the lack of employees is cited by employers as a development problem. unless there is a much sharper slowdown in activity, employers will likely carefully reduce the number of FTEs, which will limit the rise in the unemployment rate over the next few quarters“, say the analysts Bank BOŚ.
Disinflation is back on the agenda
For the ruling camp, however, the specter of rapidly rising unemployment is a clear threat in the context of next year’s elections. That is why the government is so afraid that the economy will fall into recession, which would affect the job market to some extent. Another threat to jobs could be the energy crisis, which increases the cost of running a business, which could lead some entrepreneurs to reduce employment or even go out of business.
Therefore, as Paweł Borys, chairman of the Polish Development Fund and one of the prime minister’s closest economic advisers, said in an interview with Business Insider Polska, the government is betting on a strategy in which our economy has to make a soft landing. What does this mean in practice? No recessions, no exponential growth, and no massive bankruptcies. Under current conditions, this most likely means a slower decline in inflation than if the economic situation slowed down.
Currently, both government officials and the central bank expect GDP growth in 2023 to be around 1%.
Inflation is currently our economy’s biggest problem, as it has skyrocketed to levels not seen in a quarter century and currently stands at 17.9 percent. Despite expectations of a stabilization during the holiday season, price dynamics have picked up in recent months. By this point next year, however, this problem may be minor. Although the pause in interest rate hikes will effectively mark the end of the monetary policy tightening cycle. This possibility is gaining popularity among economists. In addition, experts are increasingly starting to create lists of disinflation factors instead of looking for an inflation peak.
Although analysts still believe that next year’s average annual inflation will remain in the double digits and only slightly lower than this year’s.
Spring will change the trend
Currently, banking economists, as well as NBP analysts, see the highest point of price dynamics in January-March next year. As of the second quarter of 2023, inflation can be expected to gradually decline year on year.
This will be driven by statistical basis effects, i.e. a high benchmark from this year and a clearly visible slowdown in the economy.
The thesis that we are slowly entering the phase of disinflation is strongly promoted by the economists of Bank Pekao.
“We are already seeing the first signs of a slowdown in the wave of global inflation. In the avant-garde, they are above all here United States (recent surprise with lower readings of consumer price inflation and producer price inflation; passage of turning point on these indicators) and China, where producer prices fell for the first time in two years.
As early as Wednesday we can get more optimistic readings on price dynamics from the Eurozone. The forecast consensus assumes that both consumer and core inflation could decline slightly in November.
Wages will suppress demand
Bank Pekao economists point out that the reduction in the inflation rate should be supported by the reduction of supply problems both on the components and raw materials side, i.e. mainly by independence from natural gas supplies from Russia. Rising commodity prices, in turn, mean less pressure on demand.
“However, the extent and pace of the decline in inflation will depend on the severity and depth of the economic downturn. There are many indications that the labor market will remain relatively stronger in the coming months than before the pandemic, which will help to maintain the rising momentum of nominal wages. However, in the vast majority of economies, real wages will show profoundly negative dynamics in the coming months. This process could deepen the already strongly emphasized consumer pessimism and result in at least a temporary decline in private consumption, which in turn could prove to be an important disinflationary fuel.
According to them However, the popularity of disinflationary scenarios among market participants will depend on the length of the period of declining real wages and to what extent households will no longer be able to maintain consumption using liquidity cushions offered by the government in the form of, for example, credit holidays, energy price hike shields or previous anti-crisis shields pandemic.
The risks will remain
Forecasts currently assume that we will see single-digit inflation readings in Poland in the final months of 2023. Its decline will be slow, but awareness of such a scenario is accepted by both majorities Monetary Policy Counciland those responsible for economic policy. The essence of the power field strategy is thus this politicians are ready to accept a slower pace of disinflation processes, but in order not to risk the emergence of a recession caused by excessive tightening of monetary policy, but also fiscalj. PiS sees things here as zero-one: recession means rising unemployment, and that’s a political issue before the election.
More and more signs indicate, however, that after the still difficult half of next year, its second half will pass with clearly visible disinflationary processes and an economic recovery. The problem is that the risks for such a scenario are not symmetrical and negatively distributed, i.e. there are still more threats than opportunities.
