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Macroeconomic scenario

Economic growth

The 3Q has thus far evolved in line with our expectations. Should the forecasts for September be realized, 3Q will close with the highest yoy growth in industrial production and retail sales since summer 2022, alongside the deepest decline in construction and assembly output recorded this year. All of these factors point to a further acceleration of economic growth in Q3, which we estimate at approximately 4% yoy. Soft data and financial markets generally concur with this and indicate continued acceleration at the turn of 2025 and 2026. However, achieving an average growth rate of 4% for the year remains highly unlikely. We revised our GDP growth forecast for 2025 from 4.0% to 3.6% and raised our forecast for 2026 from 3.7% to 4.0%.

Inflation

Inflation will remain close to the inflation target, standing below 3% yoy by the end of 2025. Core inflation, although being on a downward trend, will remain higher, primarily due to persistent cost pressures in service sector. Frozen electricity prices for households in 4Q25 and the expected similar tariff levels for 2026 reduce the threat of a spike in inflation due to energy prices. Average annual CPI in 2025 will be at 3.7%, similar to 2024.

Fiscal policy

The issue of fiscal policy in 2026 continues to be a pressing topic among market analysts, and we are ready to put forward two theses. (1) Net borrowing needs in 2026 will be up to PLN 100 bn below MoF assumptions (i.e. approx. PLN 400 bn) due to a lower deficit in the European funds account. Arguably, since 2023, the execution of this budget item has never exceeded 50%. (2) New supply of Treasury securities will amount to approx. PLN 290 bn (+PLN 20 bn compared to this year), as MoF won’t be able to raise additional revenue. Market consequences: additional pressure on Treasury securities prices and weaker yield growth.

Monetary policy

The MPC has settled into a pattern of cutting interest rates every two months, which suggests another cut in November. However, recent dovish surprises (wages, CPI) increase the likelihood of a rate cut in October. Regardless, this will not be the final move in the current (unnamed) cycle — in 2026, rates will be cut by an additional 100 basis points, with the final rate of 3.5%.

Financial markets

Flying with eyes wide shut

At the time of writing, the US government is operating in shutdown mode, which means that the collection, processing, and publication of macro data has been suspended. Markets must therefore make do with less information than usual. We do not know when Congress votes on the provisional budget for the next fiscal year, but we cannot rule out that this will not happen before the publication of the next Macro Compass. Predictive markets currently estimate that this episode is likely to last another two weeks. If the situation at the turn of 2018 and 2019 were to repeat itself, the pause in data publication would extend into the Fed's October meeting and beyond.

Flying blindfolded, however, does not mean flying in absolute darkness. We know several facts about the economy and we will know more; nevertheless, the situation is less clear-cut than we would prefer. Eventually, it is clear that the uniqueness of the United States in terms of GDP growth and interest rate levels is ending or will end soon. The path of future interest rate cuts in the US expected by the market is quite ambitious, but it will be subject to revision. 

Positive fiscal developments

Not much has happened on the FI and FX markets in recent weeks. EUR-PLN fixings have been with reduced volatility for good – on the day we are writing this commentary, it is the 123rd consecutive day with intraday volatility not exceeding PLN 0.04. This makes is quite a spell, but it pales in comparison to the turn of 2018 and 2019, when we observed low volatility all throughout the year. Volatility is variable and non-linear, so sooner or later the current period of stabilisation will end. We cannot say currently what will be the catalyst for the volatility comeback. It is easier to form a directional view on the zloty exchange rate. We uphold our opinion that we had already seen the strongest zloty at the beginning of the year. In the medium term, the multi-year upward trend in the EUR-PLN (with a slope of approx. PLN 0.05/year) will return, which should be linked to higher growth in nominal wages, prices and corporate revenues in Poland compared to the euro area, beyond what is explained by higher labour productivity growth.

In recent weeks, Polish fiscal policy has attracted a lot of attention from economists and investors – the string of bad news can be traced back to the publication of the fiscal notification for 2024, i.e. the beginning of June this year. The latest data on budget execution and details of next year's budget bill are just the icing on the cake. Nevertheless, Polish securities have been trading at current prices for several years now. The yield on 10-year bonds has remained virtually unchanged for over two years. Nevertheless, since the middle of last year, medium and long-term securities have been priced at a significant discount to swaps – ASW spreads for the 10-year tenor hover around 90-100 bp, i.e. at levels indicating that the market is already buckling under the additional supply. 

Nevertheless, we believe that much of the bad news has already been priced in, the improvement in the economic situation should boost tax revenues (resulting in better budget performance) and the issue of next year's borrowing needs is, in our opinion, greatly exaggerated (see fiscal commentary on the first page).

Selected macro releases due this month

• Industrial production (our forecast September: 5.9% yoy) We anticipate a robust acceleration in industrial production in September due to a favorable calendar effect (working days shifting from -1 to +1 year-on-year), a low base from the previous year, and a gradual recovery of demand both domestically and abroad.
• Retail sales (our forecast September: 8.0% yoy) An exceptionally low base from the previous year (September 2024 was notably weak), favorable weather conditions supporting consumer purchases, and an extended shopping period (calendar effect) are conducive to a significant acceleration in retail sales. In our view, this will represent the highest growth rate in the current cycle.
• CPI inflation rate (our forecast September: 2.9% yoy) September flash reading of Poland’s CPI surprised slightly on the lower side, remaining at 2.9% yoy, below market expectations. This surprise was primarily due to lower food prices which fell by 0.5% mom - a significantly lower rate than the seasonal pattern. Meanwhile, core inflation is on a downward trend, however, its pace is very slow. Core inflation likely declined slightly in September to 3.1% yoy from 3.2% in the previous month.
• Wages in the enterprise sector (our forecast September: 7.5% yoy) During the summer holidays, wages clearly and quite unexpectedly hit the brakes, and in our opinion, September should also bring growth rates similar to those recorded in the two preceding months. Inflation, almost on target, and a slow economic recovery are the two main determinants of the slowing wage growth rate, which we forecast hovered in September around 7.5% yoy. At the same time, recent surprises in wage data have prompted us to revise our forecasts downwards – for 2025, the adjustment is cosmetic, while in 2026, we expect average wages to increase by 6.5% instead of the 7.4% previously forecast.
• Unemployment rate (our forecast September: 5.6%) The unemployment rate remains under the visible influence of regulatory changes, which have increased the index by approximately 0.5 ppts since June. However, we believe these are the final months of turbulent unemployment rate readings –  we forecast that in September regulatory factors added only 0.1 ppts to the reading, and this contribution will gradually decline in subsequent months. As a result, we forecast the unemployment rate to rise to 5.6% in September, in line with the flash reading from the Ministry of Labour, and that the aforementioned effect of regulatory changes will subside completely in November.
• Current account balance (our forecast August: EUR -1200 mn) Poland's balance of payments remains dominated by deficits, both in the trade and the current account. Nevertheless, it appears we are emerging from a cyclical trough, and net exports should gradually improve. However, this process will be sluggish. Exports is recovering slowly amidst weakness of trading partners, while imports is still driven by import-intensive private consumption and the strong zloty. We expect that August will once again see a deficit in the C/A, exceeding EUR 1 bn.
• MPC decision (our forecast October: 4.75%) The Council faces a considerable dilemma, as do economists alongside it. In our view, the recent month’s data have not been sufficiently dovish, and the MPC still has no pressing need to act hastily. Therefore, we expect the Council to postpone the next rate cut until November.