Economic News

• INTEREST RATES: We’ve got a couple of statements and interviews from MPC last week. Most dovish was L. Kotecki who said that if the government proceeds to freeze energy prices for 4Q’25 the discussion on interest rate cuts should reignite. H. Wnorowski added that the MPC is still cautiously willing to loosen monetary policy, which should translate into one additional cut until the end you year. Slightly most hawkish was I. Dąbrowski who said in an interview with Bloomberg that the MPC will either decide on a single rate cut by the end of the year or keep rates unchanged. Referring to A. Glapiński’s recent remarks on the labor market, Dąbrowski noted that in his view, further rate cuts would require wage growth to slow down to around 6–7% yoy, with a stable outlook. Somewhat surprising, however, was Dąbrowski’s comment that the adoption of legislation on freezing energy prices in the fourth quarter would not be fundamentally important for the RPP. We expect one more rate cut this year from MPC (most likely on November) followed by further loosening of monetary policy next year at the pace of one rate cut per month.
• INFLATION: The CPI inflation rate for September was revised upward from 2.8% to 2.9% y/y. Food and energy prices remained unchanged compared to the flash estimate, but prices in the core basket were revised higher, pushing expectations for core inflation from 3.1% toward 3.15% y/y. The official reading is scheduled for tomorrow. The government has adopted a draft law to freeze energy prices in the fourth quarter of this year at the current level of PLN 500/MWh. The legislation also introduces a so-called heating voucher, which will remain in effect until the end of 2026. As expected — and as already factored into our inflation forecasts — electricity prices for households in Poland will remain unchanged through the end of this year.
• PUBLIC DEBT: Last week the Ministry of Finance sold five series of government bonds with a total value of PLN 8.3 billion, against demand of PLN 9.35 billion. Additionally, bonds worth PLN 0.87 billion were placed in a supplementary auction. The total scale of the auction was close to the upper end of the announced range (PLN 6–10 billion). After the auction, the expected borrowing needs of Ministry of Finance for 2025 are covered in 91%. A swith auction is scheduled this week.
• CURRENT ACCOUNT: In recent months, the balance of payments data readings have been mixed. After a surprise surplus in June, July marked a return to a deficit — amounting to EUR 1.335 billion in the current account and EUR 1.265 billion in the trade balance. Goods exports increased by 2.7% yoy, while imports rose by 3% yoy. However, there are signs of a shift — the pace of exports is gradually catching up with imports, and improving conditions in the external environment suggest that the economy is emerging from a cyclical low in foreign trade. The trade balance should gradually improve, although this process will be slow, as import-heavy private consumption continues to drive demand.
• LABOUR MARKET: According to the preliminary reading from the Ministry of Family, Labour and Social Policy the unemployment rate rose by 0.1 percentage point in August, reaching 5.5%. At the same time, Statistics Poland (GUS) recorded a decline of 95.7 thousand job vacancies in the Polish economy in the 2Q25, representing a quarter-on-quarter decrease of 5.2%.

Should We Fear a Credit Rating Outlook Downgrade?

Fitch’s decision on Friday to revise Poland’s credit outlook from stable to negative (while affirming the long-term rating at “A-”) seemed to generate more excitement among politicians and economic commentators than among investors. In today’s report, we try to answer a key question: who’s right? Should the Ministry of Finance be concerned about the outlook downgrade? To address this, we take a look at Fitch’s historical rating actions and Poland’s past experiences with the agency.

What is the probability of a rating downgrade?

We examined the May edition of the Fitch Global Sovereign Rating History database, which contains information on all sovereign ratings issued since August 1994. Tallying Fitch's actions over this period, we found:

• More than 520 outlook revisions were made (excluding changing it to stable).
• Around 800 rating changes were executed, which means that quite often such change is not preceded by adjustment of outlook. That being said:
• 121 rating downgrades were preceded by an earlier outlook revision.

This means that a change in outlook is not a strong predictor of an actual rating change. In fact, in just under half of all cases where Fitch revised a country’s outlook, it was followed by a subsequent rating change. In the slight majority of instances, the outlook revision had no further consequences.

However, assuming that Poland’s outlook downgrade may eventually lead to an actual rating cut, the next logical question is: how much time remains before such a decision might be made? A targeted query of the database shows:

• In cases where an outlook downgrade did lead to a rating downgrade, the average time between the two actions was 307 days.
• Specifically, for countries rated A- (as Poland is now), when an outlook revision eventually led to a downgrade, the average time between the two events was 197 days.

So, broadly speaking, if Fitch’s outlook revision is indeed a prelude to a rating downgrade, it typically takes the agency around a 10 months to follow through with the final rating decision. That said, this average includes countries rated AAA — economies that tend to be more stable and resilient, where creditworthiness deteriorates more slowly. For countries like Poland, rated A- on their long-term foreign currency obligations, the timeline to a downgrade could be as short as six months.

This suggests that financial markets should closely monitor the spring round of Fitch's forecast revisions.

Rating Change, Bond Yields Don't Necessarily Follow

Finally, we looked at Poland’s historical experience with Fitch’s rating actions. The chart below summarizes our findings — it plots quarterly GDP growth, public finance deficits, and the yield on 10-year government bonds, all overlaid with dates when Fitch changed either Poland’s rating or its outlook.

Rating events, fiscal data and POLGBs yield

Source: Macrobond

Financial Market Update

Last week saw a slight depreciation of Polish assets. The yield on POLGBs moved from just below 5.45% to slightly above that level, while EUR/PLN rose from just under 4.25 to 4.255. This coincided with Fitch’s decision to revise Poland’s rating outlook to negative. That being said the market reaction was generally calm.

This week, attention turns to Moody’s, which is expected to publish its review on Friday — potentially late in the afternoon. A downgrade of Poland’s rating outlook is also anticipated here, but such a move would not come as a surprise. As such, we do not expect a preemptive market reaction or an investor exodus from Polish assets. That didn’t happen last week, and we don’t expect it this week either.

However, upcoming data releases on Thursday could test investor confidence in the Polish economy. We expect weak readings for both industrial production and construction output. Our market scenario for the week assumes a stable zloty and a continued, gradual sell-off of POLGBs.