Poland likely to experience 0.3% hit to GDP as a result of flooding

The recent flooding in Poland is likely to result in estimated damages equating to around 0.3% of GDP, equivalent to PLN 11 billion, according to ING.

Rafal Benecki, chief economist with ING in Poland, noted that the location of the flooding – away from major industrial or commercial hubs, as well as large cities – means that the impact from the flooding is likely to be less than was the case in 1997, when floods caused ‘significant economic disruption.

‘Relatively benign’

“The relatively benign scale of damages this year reflects the fact that unlike in 1997, big cities (like Wroclaw, Opole, Racibórz, Kędzierzyn-Koźle) were largely unaffected,” Benecki noted. “Moreover, the regions affected in 2024 are not typically associated with large industry, warehousing, or in general national value chains.”

The figure of PLN 11 billion relating to this year’s floods accounts for both private property and public infrastructure damages, ING said.

It added that the Polish government has allocated PLN 2 billion for relief efforts, and total spending may reach up to 0.2% of GDP. At the same time, the country is able to avail of €5 billion from EU funds for relief, reducing the fiscal strain. This is likely to be supplemented by Cohesion Funds and the Recovery and Resilience Facility, which will likely be used for infrastructure improvements to prevent future flood damage.

Inflation is expected to remain largely unaffected by the flood. Historical data shows limited price changes after the 1997 flood, and current low capacity utilisation in the construction sector should minimise price pressures, Benecki added.

“We do not expect a pronounced impact on prices either,” he said. “Even after the disastrous 1997 flood, monthly changes in CPI (both total and for example, food prices) were very limited compared to a typical seasonal pattern.”

Positive effects

In fact, he argues, reconstruction efforts, combined with additional investments funded by the EU, could contribute to GDP growth.

“The infrastructure investments undertaken after the flooding should have quite high multiplier effects,” said Benecki. “The past experiences suggest reconstruction works may be split between years, so we assume about 0.2% of GDP may add to 2024 GDP growth and more in the following years.”

Elsewhere, ING suggested that flooding in Hungary could have an impact of 0.5% on the country’s GDP.