At its party congress at end-February, the ruling PiS announced a new fiscal stimulus package ahead of the forthcoming legislative elections in October this year. As previous actions during the current legislative period, the proposed measures – including increased child benefits, a bonus for pensioners, reduced income taxes – are focused on social spending to boost consumption rather than on structural improvements. If implemented, the package will support growth – or mitigate the expected slowdown stemming from a fading investment boom and moderating external demand – in the short term. Overall, we currently forecast real GDP growth to decelerate from +5.1% in 2018 to +3.5% in 2019 and +3.1% in 2020. Moreover, the new measures are likely to reverse the recent improvement in public finances. The fiscal deficit is forecast to widen from an estimated -0.6% of GDP in 2018 to about -1.9% in 2019 and -2.5% in 2020. This outlook has also reduced the probability of any monetary loosening in the near term as inflation (0.9% y/y in January) may rebound again after mid-2019. Today, the Monetary Policy Council kept its key interest policy rate unchanged at 1.5%.
