Poland: Strong wage increases

The first half of 2007 saw an acceleration of economic activity, driven by booming domestic demand. Growing labour shortages have fuelled strong wage increases. The pick-up in unit labour costs and record-high capacity utilisation rates have darkened the inflation outlook. Persistent strength in domestic demand should support growth, but the current account deterioration is projected to continue.
The fiscal outcome has improved this year, and the outgoing government started to reduce the tax wedge. Yet the recent decision to increase spending and decrease revenues renders all the more uncertain Poland’s EU commitment to reduce its excessive deficit. With a pro-cyclical fiscal stance and above-potential GDP growth, the burden of staying on a non-inflationary growth path falls on monetary policy alone. A better policy mix would call for significant fiscal retrenchment.



©OECD Observer No. 264/265, December 2007-January 2008

OECD Economic Outlook No. 82, December 2007
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