Economic news

• PRICES: According to the flash estimate, CPI inflation in Poland slowed much more sharply than expected in October, falling to 3.5% yoy from 4.1% yoy in September. The consensus had anticipated a more moderate decline to 3.7% yoy. The biggest surprise came from core inflation, which fell below 3% yoy instead of increasing as expected. For now, second-round effects from the energy shock remain barely visible. We discuss the inflation reading in greater detail in our commentary following the publication.
• PMI: Poland’s manufacturing PMI rose to the neutral threshold of 50.0 in October, up from 49.0 a month earlier, signaling a stabilization of business conditions in the sector. This is the highest reading in 18 months. At the same time, the latest survey points to a sharp acceleration in input cost inflation, while pricing pressure on finished goods remains relatively moderate.
• BUSINESS SENTIMENT: Data collected by the NBP among enterprises as part of its Quick Monitoring Survey suggest that the investment boom entered a mature phase in Q2-Q3 2026. The OPTIN investment optimism index remained at 37%, above its long-term average, with public-sector enterprises reporting particularly strong investment sentiment. More than one-fifth of firms also indicated plans to increase borrowing, although primarily for working-capital rather than investment purposes. NBP data suggest that the ongoing adverse supply shock in hydrocarbon markets is having only a moderate impact on corporate financial conditions. In particular, the share of firms reporting liquidity problems has fallen to multi-year lows. However, the shock appears to be weighing on expectations regarding future business conditions.
• DEBT: The Ministry of Finance sold PLN 13.3bn of government bonds last week (PLN 12bn at the main auction and PLN 1.25bn at the supplementary auction), against demand exceeding PLN 18bn. In November, the Ministry plans to hold two bond auctions: on 18 November with planned supply of PLN 7-12bn, and on 25 November with planned supply of PLN 8-14bn. Bonds offered will include OK0129, PS1031, NZ0332 and DS0436, although additional series may also be made available. The Ministry also plans a bond-switch auction on 12 November. No Treasury bill auctions are currently scheduled for November.

What happened to Poland's output gap?

Economists have a fondness for concepts that cannot be observed directly, such as aggregate demand, aggregate supply, the real interest rate, or potential output. The output gap is one of them and features prominently in our publications. Unsurprisingly so, as it is one of the key concepts in business-cycle analysis and monetary policy assessment.

What exactly is the output gap? It is the difference between actual economic output and its potential level, i.e. the level that could be achieved if productive resources were fully utilized. The term itself can be somewhat misleading, as a “gap” can be either negative or positive. It is negative when output falls short of potential and positive when output exceeds it. The latter is somewhat harder to visualize, but one can think of it as a situation in which employees work overtime, machinery operates continuously without sufficient downtime, and maintenance is postponed. For economists, knowing the current level of the output gap is valuable because it provides insights into investment prospects, inflationary pressures and the appropriate stance of monetary policy.

• Filtering GDP to separate it into a long-term trend (interpreted as potential output) and a cyclical component (the output gap) using filters such as Hodrick-Prescott, Baxter-King, Christiano-Fitzgerald, or Hamilton. This is the approach shown later in the article.
• Building the gap from the ground up, either using monthly economic indicators (the bottom-up approach we also employ) or by estimating a production function. The latter is the standard methodology used by institutions such as the NBP and the European Commission.

Recently, we became interested in what firms’ own assessments might tell us about the output gap. Statistics Poland’s regular business sentiment survey contains a question almost tailor-made for this purpose: firms are asked whether “insufficient demand” constitutes a barrier to their development. The share of companies selecting this response is shown in the chart below.

Share of firms citing insufficient demand as a barrier to growth, by sector (%)

Source: Statistics Poland (GUS), Pekao Research

Responses exhibit a clear cyclical pattern. At the beginning of the century, a large share of firms complained about insufficient demand, and this proportion steadily declined until 2008. Following the global financial crisis, concerns about weak demand rose markedly and remained elevated until after 2013, before falling to new lows in 2018-19. The COVID-19 pandemic and subsequent reopening once again produced a rise and then a decline in the number of firms reporting insufficient demand. Since 2022, demand constraints generally increased until the autumn of 2025.

Share of firms citing insufficient demand as a barrier to growth, standardized and adjusted

Source: Statistics Poland (GUS), Pekao Research. Note: sector-weighted average (weights based on value added); standardized values adjusted for potential breaks aroudn 2008/2009 and 2017/2018.

How does this compare with other measures of the output gap? Surprisingly well, although in the short run different measures may disagree about its precise level. Survey-based indicators seem particularly pessimistic about economic conditions before 2008, reflecting the existence of a long-term trend that only ended shortly before the pandemic. Sharp-eyed readers will notice that firms’ complaints about insufficient demand closely resemble the unemployment rate. Both share a long-term downward trend, prolonged weakness between 2009 and 2012, and relatively high values at the beginning of the sample. While the unemployment rate is indeed a reasonable proxy for the output gap, its level reflects not only the degree of labour market slack.

Output gap estimates using alternative methodologies (%)

Source: Statistics Poland (GUS), Pekao Research

So what do these output-gap exercises tell us about Poland’s economy in recent years? All measures broadly agree that the output gap has disappeared in recent quarters. Similar conclusions can be found in estimates published by the NBP and various international institutions. This implies that the Polish economy no longer benefits from an obvious disinflationary force. At the beginning of 2026, we argued that the pass-through of the oil shock to the prices of other goods and services would be limited due to labour market weakness, the existence of a negative output gap, relatively restrictive monetary policy, compressed corporate margins, and the temporary and concentrated nature of the shock. That line of reasoning is somewhat less compelling today. Conditions have become more favourable for the emergence of the much-discussed second-round effects, and we recently identified early signs of such effects in producer price inflation (PPI).

Financial markets update

The shocking October CPI reading sent bond yields and IRS rates tumbling, widened interest rate differentials and pushed the EUR/PLN exchange rate back above 4.40, putting an end to the zloty’s promising micro-trend of appreciation. Friday’s data also finally put an end to the idea of interest rate rises in 2026. Interestingly, the market appears to be reacting much more calmly than commentators and economists – on Friday, around 10 basis points were priced out of the future rate path as indicated by FRA contracts. The differences compared with the peak two weeks ago are not, in any case, much greater. It seems that investors are not drawing overly far-reaching conclusions from the October inflation reading; they are aware of the trajectory of inflation in the coming months and are taking into account the regional and global context, which continues to point towards interest rate rises. The weekend’s domestic events reminded some market participants of the concept of political risk and led to a slightly higher opening for the EUR/PLN pair. However, in an illiquid market, 1 grosz is not a particularly significant difference, and we will have to wait a few hours for a more reliable market verdict. The new week shall couple politics with policy, due to the MPC session. The Council will have several opportunities to influence such market expectations (the decision, the projection, the NBP Governor’s press conference). Will it do so?

We believe the MPC’s rhetoric will be similar to that of the previous month, and the NBP’s inflation projection will not have any clear-cut implications. In short, the market will be left to its own devices. From a bond market perspective, this is not a bad outcome, especially as we are facing over two weeks without any new supply. There is therefore a good chance that we see a fall in Treasury bill yields this week.

Review of the upcoming macroeconomic figures

5 November, MPC rate decision, Pekao: 3.75% Consensus: 3.75%

October’s surprisingly low inflation reading has effectively ruled out a rate hike at the November meeting and, most likely, for the remainder of this year. That does not mean, however, that the meeting will be uneventful. While the starting point for the inflation path is now lower, the Council will be keenly focused on the extent of any further increase in inflation. The new inflation projection should provide the answer. In our view, the MPC will be presented with a distinctly Solomonic forecast: inflation rising above the upper bound of the target tolerance band next year, followed by a gradual return towards the target over the subsequent years.