Economic news

• RATING: Rating agency Moody’s downgraded Poland’s long-term foreign-currency rating by one notch to A3, while maintaining a stable outlook. The agency pointed to a persistent deterioration in Poland’s fiscal position and limited willingness on the part of the government to rebuild fiscal buffers during a period of favourable economic conditions. Since September 2025, Moody’s had maintained a negative outlook on Poland’s rating, signaling the possibility of a downgrade. We discuss the decision and its implications in greater detail later in today’s report.
• MPC: Interest rates are most likely to remain unchanged until the end of Q1 2027, and there is currently no justification for pre-emptive monetary tightening given that policy rates are already sufficiently restrictive and domestic inflation risks remain limited, according to MPC member Ireneusz Dąbrowski. Meanwhile, MPC member M. Zarzecki stated that he sees little room for monetary policy adjustments before year-end, although he assesses the balance of risks to the interest rate path through Q1 2027 as tilted to the upside. In his view, headline inflation readings in H1 2027 will be heavily influenced by base effects, prompting the MPC to focus particularly on underlying trends in core and services inflation. Zarzecki also cited internal NBP projections indicating inflation of 3.7% yoy in September and 3.9% yoy in Q4 2026, while noting that household inflation expectations have increased. Moreover, MPC member W. Jańczyk argued that developments in the Middle East create upside risks to interest rates and make monetary easing unrealistic at present.
• INDUSTRY: Industrial production growth slowed modestly to 4.3% yoy in August from 4.8% yoy in the previous month, coming in 2 percentage points below consensus expectations. The disappointment was broad-based, with slower growth recorded across most manufacturing industries. Looking through the monthly volatility, however, trends in Polish industry remain broadly positive. The producer price index (PPI) delivered a more interesting signal: in August, PPI inflation exceeded CPI inflation for the first time since January 2023, potentially pointing to renewed upward pressure on consumer inflation in the coming months. We discussed these developments in more detail in our commentary following the data release.
• LABOUR MARKET: Wage growth in the enterprise sector slowed to 5.6% yoy in August, well below the market consensus of 6.5% yoy. The reading suggests that at least part of the acceleration observed over the previous two months was temporary and that wage growth is returning towards rates closer to 6% yoy. We discuss the details of the release in our dedicated commentary.
• BUDGET: Budget execution remained strong in August. Total revenues increased by 9% yoy, while expenditures were 1% lower than a year earlier. The monthly deficit amounted to PLN 10bn, the smallest since January. Cumulatively, the budget deficit reached PLN 151bn, with no indication at present that the annual target is at risk. Revenue performance was supported by strong receipts from PIT (+12% yoy), CIT (+41% yoy) and non-tax revenues (+15% yoy). By contrast, VAT revenues disappointed, rising by only 2% yoy. This weakness cannot be attributed to the CPN (Fuel Prices Lower) programme, as its fiscal impact will only be reflected in September collections.
• PRICES: CPI inflation stood at 3.4% yoy in August, as confirmed by Statistics Poland’s final estimate. The detailed breakdown brought few surprises. The impact of the CPN programme introduced in the second half of August was not yet reflected in the data, while higher fuel prices have so far been feeding through mainly into directly related categories such as foreign tourism and transport. Both core inflation and services inflation edged higher. From September onwards, inflation is expected to accelerate markedly and move above the upper bound of the NBP’s tolerance band. According to our forecasts, inflation will remain above target at least until the middle of next year. Meanwhile, core inflation increased in August to 3.3% yoy, just 0.1 percentage points below headline inflation. This was slightly above both our forecast and the market consensus of 3.2% yoy.
• FUELS: The President submitted a legislative proposal to Parliament aimed at reducing fuel prices. The bill envisages a temporary reduction of the retail fuel sales tax to zero until the end of March 2027, greater flexibility for the Ministry of Finance to lower excise duties, and statutory limits on fuel company margins. According to the explanatory memorandum, a reduction in retail fuel prices of around PLN 2 per litre would lower CPI inflation by approximately 1.2 percentage points. The temporary loss of budget revenues from the retail sales tax is estimated at no more than PLN 600m.
• TRADE: In line with our expectations, Poland’s balance of payments deteriorated in July. The current account deficit widened from EUR 2.2bn to EUR 2.4bn, while the goods balance recorded a sizeable deficit of EUR 1.8bn. Export growth amounted to 12.0% yoy, compared with 14.3% yoy for imports. Computer equipment was the key product category in foreign trade. It is also worth noting that, for the first time on record, China overtook Germany as the largest supplier of goods to the Polish economy.
• SENTIMENT: Viewed from a broader perspective, consumer sentiment remained virtually unchanged in September. The current consumer confidence indicator improved slightly from -11.3 to -10.8, while the leading indicator edged down from -7.6 to -7.9. The survey details reveal a rise in inflation expectations to their highest level in six months, undoubtedly linked to higher fuel prices, alongside an improvement in households’ willingness to make major purchases. Overall, however, the stability of sentiment indicators suggests that no significant change in the pace of consumer spending should be expected in the near term.

Poland’s rating cut – not entirely unexpected

On Friday evening, the Moody’s rating agency announced a downgrade of Poland’s sovereign rating. The rating on foreign-currency debt was lowered to A3 with a stable outlook, from A2 with a negative outlook. A review of analysts’ comments, including our own, suggests that the decision came as a general surprise. It is worth remembering that the Fitch rating agency refrained from cutting Poland’s rating just a few weeks ago, prompting many analysts who had expected a downgrade to put the idea on the back burner. However, recent comments by the NBP Governor, referring to his contacts with representatives of the rating agencies, may have further reinforced that consensus.

Poland’s sovereign rating history (long-term, foreign currency)

Source: Ministry of Finance

Moody’s rating had been the most stable of the three major agencies – Poland had held an A3 rating for 24 years (!). Interestingly, throughout this period Moody’s rated Poland one or two levels above the other two major agencies. In the longer run, some adjustment towards greater convergence between the three ratings was therefore to be expected. The fact that this has now come through a downgrade of the highest rating, rather than an upgrade of the lower ones, reflects the deterioration in Poland’s fiscal position in recent years. In its commentary, Moody’s highlighted the following factors behind the downgrade:

• A persistent deterioration in public finances, reflected in higher state budget deficit, debt and debt-servicing costs,
• A decline in the effectiveness of fiscal policy, owing to its increasingly procyclical nature – the deficit remains very high despite the output gap having closed and the broader economic environment improving,
• A weakening of the fiscal framework, driven by the growing role of off-budget borrowing,
• Political constraints, including the conflict between the government and the president and the approaching parliamentary elections.

In short, Moody’s is concerned about the rise in the fiscal deficit and public debt, while the distant outlook of fiscal consolidation leads the agency to view this deterioration as persistent. Looking at the broader picture, Poland’s public debt stood at around 50–55% of GDP in previous decades, compared with an EU average of 80–85% of GDP. The EU average has not changed materially and is unlikely to do so, while Poland’s public debt is expected, according to all available forecasts, to rise to around 75% of GDP by the end of this decade.

General government debt, % of GDP

Source: Eurostat, AMECO, Ministry of Finance

From a market perspective, the impact of Moody’s decision should be limited:

1. While rating agencies are theoretically supposed to act ahead of the curve and warn investors about emerging risks, in practice a rating downgrade is usually the culmination of a multi-year process during which market risk premia rise well in advance. Moody’s may have surprised the market with this particular decision, but it did not say anything about Poland’s fiscal policy that we did not already know. In our view, markets have been pricing a higher risk premium on Polish assets for more than two years.

2. All three major agencies continue to place Polish sovereign debt among investment-grade assets, and a loss of such status is currently inconceivable.

3. Poland is not an isolated case. Bond markets have been sending warning signals to many advanced economies for months, if not longer. Sovereign bond valuations are calling for fiscal consolidation in the US, the UK and France, among others. 

4. While the fiscal deficit trajectory outlined in the latest draft 2027 budget bill came as a surprise to both markets and economists, some of the underlying fiscal mechanics in Poland have not changed. With the grant component of the EU Recovery and Resilience Plan (KPO) set to wind down, Poland has already passed the peak in its borrowing needs. The freezing of tax thresholds and subdued wage growth in the public sector should generate budget savings of around 0.5% of GDP. Some degree of fiscal consolidation should therefore be expected – although this is not enough to warrant an upgrade in the rating.

Financial markets update

Domestic markets largely took their cue from developments in core markets last week, allowing sentiment to improve somewhat. Following a month of heavy selling in the Polish bond market, the yield on the 10-year benchmark appeared to peak at 6.5% before declining sharply to around 6.15%. The PLN, meanwhile, weakened as interest rate differentials narrowed and the US dollar strengthened. As a result, EUR/PLN moved roughly two figures higher (from 4.34 to 4.36), while USD/PLN rose by around five figures (from 3.76 to 3.81). The most important domestic event of the week was Moody’s downgrade of Poland’s sovereign rating. We discussed both the rationale and implications of this decision in detail earlier in the report. Here, it is worth noting only that the market reaction has so far been relatively muted. Poland’s fiscal challenges have been evident for some time and are well understood by investors. Nevertheless, the downgrade constitutes a negative signal for Poland. Combined with the currently fragile global market sentiment, it could provide the catalyst for another round of upward pressure on Polish government bond yields and renewed depreciation of the zloty. This remains our baseline scenario for the coming week.