Potential Growth in Poland
A. Poland’s Convergence Success
1. Poland has achieved substantial economic convergence within the EU. The economy has roughly doubled in size over the last two decades. Real GDP per capita over the same period has increased from just under 50 percent of the EU27 average to 80 percent. The speed of convergence has been one of the fastest historically for an economy of its size, now the 20th largest in the world in real terms and 5th largest in the EU. Poland has been classified as a high-income country by the World Bank and has closed substantial distance to many advanced EU countries. We examine three interconnected ways to explain this convergence success: rising labor productivity coupled with a robust labor supply, capital deepening from a relatively shallow base coupled with high total factor productivity growth, and strong EU trade and institutional linkages helping accelerate adoption of technologies and raise income via exports.
GDP Per Capita After Reaching 25,000 Income Per Capita
(2021 USD, PPP-adjusted)
Citation: IMF Staff Country Reports 2025, 007; 10.5089/9798400298929.002.A001
Sources: IMF, World Economic Outlook; and IMF staff calculations.Robust Labor Productivity and Labor Supply
2. Labor productivity growth was robust until the disruptions from COVID. Using detailed sector-level data, aggregate labor productivity growth is decomposed into an intra-industry productivity growth effect, a structural shift effect (changes in labor shares), and an interaction effect (Fabricant, 1942; McMillan et al., 2014; de Vries et al., 2013; IMF 2015, IMF 2024). The decomposition exercise indicates that both structural transformation and within-sector productivity growth contributed to aggregate labor productivity growth, with productivity growth within the nontradable service sector being the largest contributor. The disruptions of activity following COVID together have contributed more recently to volatility.
Employment Shares
(Percent)
Citation: IMF Staff Country Reports 2025, 007; 10.5089/9798400298929.002.A001
Sources: Eurostat; Haver Analytics; and IMF staff calculations.Structural transformation continued to support productivity growth over the last decade (Text Figure 1, right panel). The economy has undergone structural transformation since Poland joining the EU, which contributed about one-fifth of labor productivity growth from 2004-2013 (IMF 2015). Such sectoral shifts continued in the second decade of its EU membership, with labor moving from less-productive tradable goods to more productive tradable and non-tradable services. Services, both non-tradable and tradable, now make up about 70 percent of the economy.
Within-sector productivity growth was a major driver of aggregate labor productivity growth (Text Figure 1, left panel). Productivity growth within sectors point to also broad-based productivity gains, which may be explained in part by strengthening human capital on the back of strong education outcomes. Productivity growth in the non-tradable services sector was the largest contributor to aggregate labor productivity growth, helping stem real exchange rate appreciation pressures from the Balassa-Samuelson effect, until COVID disrupted demand. Post-pandemic normalization led to a rebound in productivity growth in tradable goods and a rebalancing of sectoral demand. More recently, labor hoarding may have resulted in slowing productivity growth.
Educational Attainment
(Percent; share of population, ages 15-64)
Citation: IMF Staff Country Reports 2025, 007; 10.5089/9798400298929.002.A001
Source: Eurostat.Labor Productivity Growth
Citation: IMF Staff Country Reports 2025, 007; 10.5089/9798400298929.002.A001
Sources: Eurostat; Haver Analytics; and IMF staff calculations.1/ Labor productivity calculated as real GVA divided by number of employees.3. The labor supply overall was moderately supportive, benefiting from rising labor force participation rates, which was further supported in the last decade by migration. Labor force participation rates have closed on the EU27 level over the last decade. During the same time, Poland has transitioned to a net immigration country. Shortage of labor in some service sectors has prompted the shift from a labor exporter to a labor importer since 2018 (Text Figure 2). This trend has accelerated further since the onset of Covid and Russia’s war in Ukraine. Foreign workers, including refugees, played a key role in addressing the recent labor shortage and keeping the Polish economy competitive (see 2024 Article IV Staff Report, Annex I).
Labor Supply and Immigration
Citation: IMF Staff Country Reports 2025, 007; 10.5089/9798400298929.002.A001
Sources: Eurostat, Labor Force Survey; Haver Analytics; Statistics Poland; ZUS; and IMF staff calculations.Total Factor Productivity Convergence and Capital Accumulation
4. Decomposing potential growth by inputs point to TFP and capital accumulation as the main drivers:
Firm-level analysis confirms substantial TFP convergence to advanced European economies since EU accession. This applies to most sectors with the notable exception of information, and communication technology (ICT) and manufacturing, where there remains significant scope for convergence (Text Figure 3).
2011-2019 GDP Growth Decomposition
(Percent; average of WEO data for 2011-2019)
Citation: IMF Staff Country Reports 2025, 007; 10.5089/9798400298929.002.A001
Sources: IMF,. World Economic Outlook (October 202-4); and IMF staff calculations.Note: EÄ = Euro area. CESEE exd. RUS/TUR = BGR, BIH CZE EST,. HRV, HUI I LTU,. LVA, MDA, POL, ROU, SRB SVK, SVII. CE = HUI I POL. SEE EU = BGR, ROU. SEE non-EU = BIH, SRB.TFP Growth by Sector
Citation: IMF Staff Country Reports 2025, 007; 10.5089/9798400298929.002.A001
Sources: Orbis; and IMF staff calculations.Note: Distance to advanced EU TFP is defined as the ratio of the median firm’s TFP in Poland to the median firm’s TFP in EU countries that have higher per-capital income than Poland.5. Capital accumulation also contributed to potential growth. Despite a relatively low investment-to-GDP ratio compared to regional peers, capital accumulation was still relatively significant given a smaller initial stock, with estimates showing higher increase in net capital stock per worker since 2011 relative to the region (Figure 4). Given Poland’s still relatively small capital stock across sectors, there remains a significant scope for convergence through capital deepening.
Capital Stock Accumulation and Scarcity by Sector
Citation: IMF Staff Country Reports 2025, 007; 10.5089/9798400298929.002.A001
Sources: European Commission; AMECO database; Haver Analytics; Eurostat; and IMF staff calculations.Spillovers from Deepening EU Trade and Institutional Linkages
6. Poland’s trade linkages have deepened since the GFC. The share of value added in foreign demand increased from 27 percent in 2009 to 37 percent in 2020 based on the latest available OECD data, a substantial increase relative to the region closing much of the distance to smaller open economies in CESEE such as the Czech Republic and Hungary. This transformation has supported technology transfer helping in part explain the TFP convergence. Trade also supported rising income levels as the rise in the value-added share from exports was generated despite a declining share of labor in tradable sectors.
Exported Value Added
(Shared of domestic value added)
Citation: IMF Staff Country Reports 2025, 007; 10.5089/9798400298929.002.A001
Sources: OECD, TiVA; and IMF staff calculations.7. Notwithstanding following recent shocks, Poland has continued to expand its market shares in foreign demand. Poland’s share of the world’s exports has shown little sign of weakening following the successive shocks from the pandemic and the energy price shock. Polish shares of EA’s manufacturing imports have continued to grow fast relative to competitors (Text Figure 5).
External Market Shares
Citation: IMF Staff Country Reports 2025, 007; 10.5089/9798400298929.002.A001
Sources: Direction of Trade Statistics, IMF; Haver Analytics; Eurostat; and IMF staff calculations.Note: CESEE (excl. POL) is defined as BGR, CZE, HRV, HUN, ROU, SVK, SVN.B. The Outlook for Potential Growth
8. Poland’s economic convergence within the EU is expected to continue albeit at a slower pace. Using a production function approach (see IMF 2022 for details), staff now estimates that Poland’s potential growth to remain solid, but gradually decline, reaching 2.7 percent by 2029 (Figure 6), still around twice the projected potential growth for the Euro Area. Medium-term growth is expected to be driven by capital deepening supported by Next Generation EU (NGEU) funds, as well as a recovery in total factor productivity growth, in part from the impact of recent labor hoarding, offsetting an increasing drag from a diminishing labor supply.
Contributions to Medium-Term Potential Growth
(Percentage points)
Citation: IMF Staff Country Reports 2025, 007; 10.5089/9798400298929.002.A001
Sources: Statistics Poland; ZUS; IFS; and IMF staff calculations.Labor Scarcity Weighs on the Outlook
9. Moving forward, the labor supply is expected to comprise a substantial drag on potential output. This contribution of around -0.6 percent each year is due to a declining working age population, a plateauing of labor force participation rates, and diminishing working hours per worker in line with post-pandemic trends (Figure 7). The baseline assumes that migration flows do not offset this domestic demographic headwind. Despite the significant contribution to potential growth from recent flows of migrant labor and refugees thanks to open and integrative policies towards Ukrainian refugees, the outlook for further dividends is highly uncertain due to:
Significant uncertainty on refugee flows moving forward given the still-unfolding war in Ukraine. To fully offset the projected decline in the domestic labor force, the number of foreign workers will need to increase by 400 thousand, or one third by 2029, compared with a total labor force of about 18 million people (see 2024 Article IV Staff Report, Scenario 2 in Annex I. Text Figure 5). Meanwhile, foreign workers and refugees face considerable challenges in employment and integration. Surveys conducted by NBP, UNHCR and other agencies indicate skill-mismatch and language barriers as key challenges for recent immigrants including refugees in the labor market. In fact, the NBP survey suggests that 40 percent of pre-war Ukrainian migrants and 60 percent of refugees anticipate returning to Ukraine when the war ends, which for Poland could imply a loss of about 100 thousand foreign workers (Scenario 1). Under Scenario 1, potential output is reduced relative to the baseline by 0.2 percent by 2029, while under Scenario 2 potential output would be higher than the baseline by 0.9 percent.
Tightening migration policies. The recent draft migration strategy emphasizes national security and would effectively restrict the inflow of foreign workers particularly those low skilled and those from outside of OECD countries. Given tightening labor market conditions and rising labor scarcity across the region including in OECD countries, this may effectively limit the scope for further net migration outside of refugee flows.
Impact of Labor Supply on Potential Growth
Citation: IMF Staff Country Reports 2025, 007; 10.5089/9798400298929.002.A001
Note: Baseline assumes zero net inflow of foreign workers; Scenario 1 assumes 50 percent of refugees leave in 2025; Scenario 2 assumes an increase of 400 thousand new foreign workers by 2029 to offset the projected decline in the domestic labor force.Sources: Statistics Poland; ZUS; and IMF staff calculations.EU Fund Absorption Provides a Temporary Boost to Capital Deepening
10. The execution of NGEU funds will help accelerate capital deepening in the near-term, but there is uncertainty on the outlook beyond that. A sustained pickup faces several challenges:
Investment rates have been trending at weak levels. Poland has had low investment-to-GDP compared to peers in the region. Firm-level surveys point to overall limited investment appetite and higher barriers to investment than in peers (Box 1). Firm-level regression analysis confirms that uncertainty about future profitability and the macroeconomy had an impact on firm investment decisions, and weaker profit expectations contributed to lower investments following the global financial crisis (Box 2).
Gross Fixed Capital Formation
(Percent of GDP)
Citation: IMF Staff Country Reports 2025, 007; 10.5089/9798400298929.002.A001
Sources: Eurostat; Haver Analytics; and IMF staff calculations.Note: CESEE (excl. POL) is defined here as BGR, CZE, HRV, HUN, ROU, SVK, SVN.Credit intermediation for corporate investment is limited. Polish enterprises rely mainly on retained earnings for investment and the share of non-financial corporate loans to GDP are lower than for EU and CESEE comparators (Figure 8). Moreover, much of the credit is external with domestic credit to private non-financial firms comprising less than 15 percent of GDP.
Credit to Private Non-financial Sector
(In percent of GDP)
Citation: IMF Staff Country Reports 2025, 007; 10.5089/9798400298929.002.A001
Sources: NBP; and IMF staff calculations.Recent Investment Trends
Citation: IMF Staff Country Reports 2025, 007; 10.5089/9798400298929.002.A001
Sources: Haver Analytics; Statistics Poland; Eurostat; and IMF staff calculations.Note: CESEE (excl. POL) defined as BGR, CZE, HRV, HUN, ROU, SVK, SVN.FDI remains relatively low in Poland with geoeconomic fragmentation posing two-sided risks. FDI liabilities stock has been stagnating around 50 percent of GDP since 2010, significantly lower than 70 percent for the euro area and 80 percent for CESEE countries (Figure 1). In addition, the nominal values of greenfield investment in Poland and Europe have not recovered to the pre-GFC peak level. With the deepening of geoeconomic fragmentation, Poland’s political alliances could position it to benefit from the growing trends of near-shoring and friend-shoring in the short- to medium-term. Over the long-term, however, a wider or deeper fragmentation could divide trade and FDI flows, with the impact on Poland being highly uncertain (Figure 2).
Fiscal pressures are high, potentially crowding out public investment over the mediumterm. Given the significant fiscal pressures from current spending, including on defense, together with the imperatives of debt sustainability, non-military non-EU financed investment is projected to decline as a share of GDP from around 3.9 to 3.3 percent of GDP in 2029 (2024 Article IV Staff Report). Thus, maintaining public investment would require additional fiscal consolidation or a successor to NGEU funds.
FDI Development
Citation: IMF Staff Country Reports 2025, 007; 10.5089/9798400298929.002.A001
Sources: fDi Markets; Atlantic Council; NL Analytics; United Nations; European Commission; and IMF staff calculations.Note: Strategic manufacturing sectors include semiconductors, telecommunications and 5G infrastructure, equipment needed for green transition, pharmaceutical ingredients, and strategic and critical minerals. See World Economic Outlook (October 2024) for details.Geoeconomic Fragmentation and Poland
Citation: IMF Staff Country Reports 2025, 007; 10.5089/9798400298929.002.A001
Sources: Eurostat; UN COMTRADE; UNCTAD; and IMF staff calculations.1/ Disc size reflects exports value; strategic sectors highlighted in red; and numbers refer to ISIC codes.2/ Dotted lines adjust for suspension of the Intel Corporation investment.Firm Investment Trends and Obstacles
A majority of Polish firms do not plan to ramp up investment. The European Investment Bank’s Investment Survey indicates that around four-fifths of firms do not intend to increase their investment beyond current levels, suggesting that expected future profitability does not justify higher investment. Compared to the rest of EU, however, a slightly higher share of Polish firms reports unmet investment demand. In particularly, more firms in the infrastructure sector and more SMEs tend to report investment needs that are higher than their current levels. Even among firms planning to invest, nearly two-fifths anticipate directing their investment toward replacing existing capacity rather than expanding capacity or introducing new products.
Poland: Perceived Investment Gaps, 2023
(Share of firms in category)
Citation: IMF Staff Country Reports 2025, 007; 10.5089/9798400298929.002.A001
Source: European Investment Bank Investment Survey.Polish firms face higher barriers to investment than their EU peers. Future uncertainty, energy costs and availability of skills top the list of long-term investment obstacles, followed by business and labor market regulations, access to finance and access to infrastructure. Compared to their EU peers, Polish firms face higher obstacles in most areas. Firm-level analysis confirms some of the main survey findings, highlighting the roles of expected future profits and the macro environment were main drivers of firms’ investment decisions (Box 2).
Obstacles to Long-Term Invesment, 2023
(Percent of firms)
Citation: IMF Staff Country Reports 2025, 007; 10.5089/9798400298929.002.A001
Investment Priorities, 2023
(Percent of firms)
Citation: IMF Staff Country Reports 2025, 007; 10.5089/9798400298929.002.A001
Determinants of Investments: Firm-Level Analysis
Regression analysis on firm-level data sheds light on important firm- and macro-level factors determining the investment decline since the GFC. Using firm balance sheet and income statement data, the analysis examines the determinants of net investment rate of 510 publicly listed firms over 20 years in Poland. The empirical specification draws from the theoretical literature: investment rates increase with a firm’s market value relative to its cost of capital (“Tobin’s q”), profits, and cash stock but decrease with higher leverage and cost of debt. Details of the methodology can be found in Chapter 3 of the World Economic Outlook (April 2024).
Regression results suggest expected profitability and macro environment had a significant impact on firms’ investment. The overall investment rate has declined, on average, by about 2.6 percentage points since the GFC. Tobin’s q, a forward-looking indicator of firms’ profitability expectations, decreased by about 25 percent on average, contributing significantly to the decline in investment. Interest rate and profit margins do not have a statistically significant impact, although the variables in the regressions are not able to fully capture the cost capital and firms’ financial constraints. While statistically significant, the impact of cash is relatively small. At the macro level, GDP growth, economic uncertainty and capital flows are important determinants of firms’ investment decisions and contributed to the decline in investment after the GFC.
Total Factor Productivity Growth to Remain Supportive but Less so than Pre-Pandemic
11. TFP growth is projected to recover from the impact of recent labor hoarding, but to remain below pre-pandemic levels. Given the accounting limitations for labor hoarding in this potential growth decomposition, the cyclical unwinding of labor hoarding will mechanically help TFP recovery over the medium-term.
12. Underlying TFP growth may be suppressed by diminishing low-hanging fruits. The structure of the Polish economy has matured and is already stabilizing, with a large share of the workforce in higher productivity services. Thus, gains to productivity moving forward may depend more on within-sector productivity. Nevertheless, given already substantial convergence, the potential for imitation and technology adoption from European peers in most sectors have been largely reaped. Further TFP growth will need to come from either FDI and the associated technology transfers from the global technology frontier, higher allocative efficiency or self-innovation.
Manufacturing and ICT stand out as two sectors with still significant room for further advancement to the technological frontier. To this end, investing in digital infrastructure is crucial for promoting productivity growth in these two sectors, as digitalization, automation and artificial intelligence technology will determine their productivity frontiers in the future.
Reducing barriers to resource reallocation would help support higher productivity. This includes addressing regulatory barriers to competition in some services professions (for example: architects, accountants, lawyers) and relaxing product market regulations.
Strengthening the business environment to attract FDI and R&D activities, including from nonEuropean sources to tap into the global technological frontier, could further improve TFP growth (Figure 2).
Business Climate and Innovation Indicators
Citation: IMF Staff Country Reports 2025, 007; 10.5089/9798400298929.002.A001
Sources: EUKLEMS; Eurostat; European Commission; World Economic Forum; and IMF staff calculations.C. Risks
13. The outlook for potential growth is subject to considerable downside risks due to external and internal factors. The strong competitiveness of the Polish economy could be eroded if a convergence in labor costs picks up speed, while labor productivity growth stalls. Such loss of competitiveness would weigh on trade and FDI, and with it on the potential for new technology transfers and productivity. At the same time, regional conflicts and geoeconomic fragmentation are adding uncertainty to the global supply chain and trade linkages and may present additional headwinds to penetrating markets outside of the EU. On the investment front, much will depend on the capacity of the banking system to accelerate private sector credit-to-GDP from the current low levels. Given fiscal pressures, a crowding out of both public and private investment over the medium-term could substantially curtail potential growth further. On the upside, structural reforms, both on the EU level and in Poland would support investment and productivity and boost potential output. Such reforms will be needed to sustain growth over the longer-term as the EU’s RRF funds wind down and population ageing accelerates.
D. Policy for Sustaining Long-Term Growth
14. Policies should focus on deepening capital, facilitating resource reallocation, supporting labor supply, and enhancing innovation capacity.
Supporting investment. Poland’s capital stock remains significantly below comparators. Policies should aim to support business financing and ease regulatory hurdles to FDI and private investment. The government should also address obstacles to long-term investment, i.e., the efficiency of tax and business legislation, and basic infrastructure. To this end, NGEU grants should be absorbed fully and effectively to address infrastructure gaps and support digitalization.
Improving allocative efficiency. Poland imposes more labor market restrictions than its European peers, including regulatory barriers to competition in some professions. Relaxing labor and product market regulations could facilitate workers’ movement within and between sectors. Strengthening insolvency procedures including by strengthening the capacity of courts for timely processing would also support higher dynamism.
Ensuring an adequate labor force. Strengthening vocational training and skill-matching could improve skills and allocative efficiency. Raising labor force participation among older cohorts should be complemented by enhancing adult learning. Female Labor participation should be supported by ensuring adequate child and elderly care. Following the successful initial absorption of Ukrainian refugees, better integrating foreign workers through adequate language training, social support, and transportation could increase productivity and attract foreign labor.
Nurturing innovation. Poland has closed on Europe’s productivity frontier in most sectors (except manufacturing and ICT). To sustain growth, it will need to transition from technology adoption to innovation. However, R&D capital in Poland is scarce relative to peers, and R&D spending is low. Government incentives and the financial system should be geared toward creating a conducive environment for R&D and other innovation activities, including by promoting private equity and venture capital.
