Economic news

• INDUSTRY: In September, industrial production surprised strongly on the upside, with a 7.4% year-on-year growth, compared to 4.7% yoy expected by the consensus of forecasts and 5.9% yoy expected by us. The surge in production was driven by a low statistical base from September 2024 and calendar effects (more working days). However, the overall performance of manufacturing was strong in its own right – particularly in the automotive sector, which was the main contributor to the upside surprise. A detailed comment on the data can be found here.
• CONSTRUCTION: Construction output increased by 0.2% yoy in September, slightly above market forecasts calling for a 2-3% yoy decline. This does not change the overall picture for the sector, which is unfavorable – in the first nine months of the year, construction output fell by 0.9% yoy on average. We write more about situation in the Polish construction sector later in the report.
• LABOUR MARKET: Wage growth in the enterprise sector in September was 7.5% yoy – in line with both our and the consensus forecasts, and slightly up from 7.1% year-on-year in August. The acceleration was mostly driven by one-off factors (e.g. more working days) and does not significantly alter the broader trend of easing wage pressures. Employment in the enterprise sector declined by 0.8% yoy in September – the same as in August and in line with expectations. A detailed commentary on the data can be found here. In turn, the unemployment rate rose in October for the fourth consecutive month, against the seasonal pattern (from 5.5% to 5.6%). We believe we are still seeing the effects of regulatory changes of the labour offices. The regulatory effect is gradually fading and should disappear by the end of the year. With it eliminated, the labour market still looks stable – we forecast the unemployment rate will reach 5.7% by the end of 2025, and should decline slightly in 2026.
• GG DEFICIT: According to the Eurostat, the general government deficit in Poland will increase to 7.0% of GDP in 2025 from 6.5% a year earlier, which is more or less in line with our forecast (6.9%).
• RETAIL SALES: Retail sales grew 6.4% yoy in September – slightly slower than the consensus forecast of 6.8%, and significantly faster than August's 3.1% yoy. The acceleration was primarily due to the increased number of working days and a low statistical base. The September reading also confirms the thesis about the strength of the Polish consumer in 2025, with a growing propensity to purchase durable goods: furniture, consumer electronics, household appliances, clothing, and footwear.
• ECONOMIC SENTIMENT: In the third quarter, both the current condition of Polish companies and their future expectations improved, according to the National Bank of Poland's Quick Monitoring Survey. Their sales revenues and propensity to invest increased. However, the improvement was not strong enough to noticeably increase the low profitability of the domestic corporate sector.

A breath of optimism from the construction industry

Construction output increased by 0.2% yoy in September, slightly above market forecasts calling for a 2-3% yoy decline. This does not change the overall picture for the sector, which is unfavorable – in the first nine months of the year, construction output fell by 0.9% yoy on average. Construction production is a highly cyclical indicator and the current cycle is closer in severity and duration to that of 2012-2013 than to 2016-2017 (see the chart below).

Comparison of economic downturns in construction (cumulative change in production compared to the average from the fourth quarter of the previous year)

Source: Statistics Poland, Pekao Research

September itself performed better than forecasts. In fact, this is the highest seasonal increase in construction and assembly production in September on record, largely due to the weakness of August (which was the weakest August on record), a favorable calendar pattern, and the absence of weather-related disruptions. Since September production was strong due to August's weakness, October's output will likely be weak due to September's strength. Therefore, we don't consider the September result a turning point. Nevertheless, there are positive signs in the sector.

Most importantly, there is a rebound in residential construction, as indicated by the concurrently published activity data for this sector. This segment is returning from a long journey – until recently, double-digit declines in housing starts and building permits were recorded, but in September, both fell below zero for the first time since the end of 2024. Switching to seasonally adjusted data reveals this in greater detail: residential construction activity reached a local low in June of this year and has since increased by approximately 20-25%. Its recovery is, of course, incomplete – approximately 10k more apartments per month are missing the historic peaks of 2021-2022, and about 5k more apartments per month are missing the 2017-2019 norm.

Residential construction activity (number of apartments, seasonally adjusted data)

Source: Statistics Poland, Macrobond, Pekao Research

It is no coincidence that residential construction hit a trough in the spring. This is a response of supply to the increase in demand, which in turn is due to the easing of monetary policy this year. In recent years, the relationship between these two indicators has been quite clear: the cooling of the credit market in 2022 translated into a reduction in activity by developers and other investors in the housing market with a delay of approximately six months. The fluctuations in demand related to the housing loan subsidy "Bezpieczny Kredyt 2%" program are reflected in real estate supply statistics, which are separated by a similar time interval. It's no surprise, then, that since the mortgage market thawed in March of this year, a supply-side effect was seen a few months later.

Comparison of activity in the housing and credit markets

Source: Statistics Poland, Pekao Research

Residential construction was a significant (albeit unexpected) driver for the entire sector in the first half of the year. This likely ended in recent months due to the decline in activity (construction starts and building permits received) observed since mid-2024. However, the slowdown is not expected to last long for the reasons discussed above. Nevertheless, the world doesn't end with residential construction. 2025 was supposed to be the year of infrastructure and specialized construction, but the results in these segments were generally disappointing. This is due to the delayed start of EU-funded investments and ongoing design and preparatory work. However, the clock is ticking for contracts signed in 2024 (whose value in road and rail construction was twice that of 2023), and we will see results on construction sites in the coming quarters. Local government investments are also gaining momentum. The arguments for a large increase in investment in Poland are not outdated, but they were premature, by about a year.

Preview of upcoming data in Poland

October 31, October CPI (flash), Pekao:  ~2.9% yoy

At the end of the week, we will receive the flash reading of October Poland’s CPI, which will confirm its stabilization slightly below 3% yoy. Moreover, we assume that core inflation continued its slow but downward trend and fell to 3.1% yoy. The extension of the electricity tariff freezing into the fourth quarter prevented a significant increase in energy prices.

Financial Market Update

Close, but no cigar... Last week, the zloty attempted to break out of its six-month range, but the activity of EUR-PLN sellers (PLN buyers) was vigorous enough only to temporarily push the exchange rate below the lower limit of this range. The time spent below 4.23/EUR was short, and the EUR-PLN promptly returned to 4.25. However, the appreciation pressure on the zloty did not come out of nowhere, and relatively good news from the global economy (over the weekend: US-China agreement) will continue to favor EM assets. Among them Polish assets rank pretty high, it is no wonder PLN has been appreciating. We also saw a false alarm on the FI market – key interest rate benchmarks set multi-month lows last week, but the end of the week (thanks to increases in bond yields around the world) brought a partial reversal of this move. In the coming days, domestic factors will return to the game, as we await preliminary inflation data for October (Friday). This will be the last signal before the November MPC meeting and the last chance to modify forecasts based on the data.