The slowdown in GDP growth that began in 2000 intensified during 2001 and has continued into the first half of 2002 (Figure 1). As indicated in the previous Economic Survey of Poland (OECD, 2001) the cyclical downturn was a necessary and welcome response to the overheated state of the economy following several years of very strong growth and investment performance. Indeed, the slowdown bears the hallmarks of a classical investment cycle, although its impact on activity was exacerbated by the growth slowdown elsewhere in the world. The accompanying deterioration of the Polish labour market is worrisome. At more than 20 per cent of the labour force (on a labour-force survey basis), Poland’s unemployment rate is the highest in the OECD and almost half of the working-age population is not working. On the positive side, inflation has come down dramatically and as of May 2002 has been less than 4 per cent for over 6 months. Moreover, there are virtually no indications pointing to a return to higher rates of price increase. In this muted economic climate, indications are that the recovery in output in 2002 and 2003 will be moderate, and unemployment is likely to remain high over the near term. Looking further forward, a number of important reforms will be required in both labour and product markets if unemployment is to be brought down to acceptable levels and the economy is to achieve high rates of growth on a sustainable basis.