The full publication is available in a PDF file Download here

Detailed forecasts and data can be found in an Excel file Download here

Macroeconomic scenario

Economic growth

The rising tide lifted Polish exports as well – in Q2 it rose at a fastest pace in four years. Investment has also ramped up, faster than we had anticipated (growing by 8.4% yoy in Q2). Thus, economic growth accelerated from 3.5 to 3.9% yoy, as recent data showed and we expect the economy to maintain good momentum in Q3. Thus, we decided to raise this year’s growth outlook, from 3.5 to 3.7%. GDP growth forecasts for 2027 are unchanged.  

Inflation

We are facing an inflation rollercoaster driven by developments in the Middle East. The summer brought renewed deterioration in the situation around the Strait of Hormuz and, consequently, a rise in market oil prices. As a result, the scenario we outlined in May has once again become our baseline. CPI inflation still has room to rise and could reach as much as 4% yoy towards the end of the year, marking a local peak. However, a prolonged fuel price shock will gradually generate second-round effects, worsening the inflation outlook for 2027. Next year, inflation will be driven primarily by supply-side factors - notably food and energy prices - while domestic price pressures are expected to weaken. We forecast average inflation at 3.5% in 2027, albeit with a volatile path shaped by changing base effects, with inflation returning to safer territory within the target range only in the second half of 2027.

Labour market

The summer months were marked by significant upside surprises in wage growth, with each of the holiday-period readings (for June and July) exceeding the market consensus by 0.5 percentage points. In light of these developments, together with tentative signs of an improving labour market from the employee’s perspective, including a positive surprise in the latest employment data and a modest rebound in labour demand indicators, we have revised our wage growth forecast for this year upwards from 5.5% to 6.0%. At the same time, we believe there are emerging grounds for a modest improvement in employment and unemployment indicators. However, we see little scope for this segment of the labour market to break out of its prolonged period of stagnation.

Monetary policy

The combination of faster economic growth, higher and more persistent inflation, recovery in the labor market and looser fiscal policy effectively ends any plans to ease monetary policy. We therefore decided to raise our interest rate forecasts – we now expect the MPC to hold rates until the end of 2027.

Financial markets

Are we overthinking bond yields?

During the summer break, the bond market was far from idle, and we witnessed a continued sell-off of government bonds. As a result, yields rose by 30–50 basis points, depending on the country and the maturity. In general, however, yield curves steepened, and we saw larger increases in rates in Europe than in the U.S. 

Many kilobytes of text have been written about the causes of the sell-off (it has been going on for much longer), but the best we can say about the resulting consensus is that it isn’t concise, because a whole host of factors driving yield increases is being put forward: fiscal policy, persistent inflation, supply shocks, political risks, competition for capital, etc. But what if we’re overthinking this? Perhaps the answer is much simpler, and the difficulty in grasping it stems from our anchoring on the patterns, valuations, and price levels that prevailed in the previous decade. Maybe we’ve simply returned to normalcy in this decade? 
For example, while real yields have risen significantly this year, they remain at levels typical of the first decade of the 20th century and well above those of 2009–2019. If current interest rates are appropriate, yield curves may remain steep. This would mean that the long end of the curve is not particularly oversold. 

If interest rates aren’t obviously too high, then market expectations regarding the future paths of major central banks’ rates aren’t absurd: the ECB will raise rates at least once more, the Fed at least once, and so on. In each of these cases, the markets have room to play out a scenario here – in particular, a continuation of mini-cycles of monetary policy tightening.

Farewell to rate cuts

The Monetary Policy Council (RPP) went on summer break with plans to resume a cycle of rate cuts soon, but reality had other ideas on this matter. Nothing that happened over the past two months brought the National Bank of Poland (NBP) any closer to resuming rate cuts: the oil shock has dragged on for weeks and, at least in Europe, has intensified and spread to other energy carriers; economic growth has proven faster and more resilient to the aforementioned shock; inflation has surprised on the upside; rising commodity prices have pushed up the projected inflation path; and signs of a recovery have emerged in the labor market. For the first time since the outbreak of the Gulf War, market pricing (the market currently expects nearly three 25-basis-point rate hikes over the next year) makes sense. Will the Monetary Policy Council (RPP) pull this off? For now, we consider such a scenario unlikely. However, the markets are right to believe that the balance of risks for a stable interest rate path is asymmetric. Ultimately, macroeconomic data – including, above all, domestic inflation – will determine the outcome. 

Selected macro releases due this month

• Industrial production (our forecast August: 7.2% yoy) We expect industrial output to accelerate in August due to favorable working day arrangement and limited downside (compared to previous decade) from retooling closures in the automotive sector.
• Retail sales (our forecast August: 5.3% yoy) The government temporarily cut indirect taxes on fuels in the second half of the year – too late to affect CPI, but retail sales will be boosted by last-ditch purchases before the expiry date. Other categories are unlikely to swing one way or the other. Overall, retail sales accelerated to 5.3% yoy. 
• CPI inflation rate (our forecast August: 3.4% yoy) According to the flash estimate, CPI inflation accelerated markedly in August to 3.4% yoy from 3.0% in July, once again primarily driven by higher fuel prices, while food prices continued to decline. The data do not yet reflect the impact of the government’s fuel anti-inflation programme (in Polish the CPN programme), which was resumed only in the final two weeks of August, after the Central Statistical Office had completed its price collection. The rebound in core inflation to around 3.2-3.3% yoy is a concern.
• Wages in the enterprise sector (our forecast August: 6.3% yoy) The high base effect from the previous month is set to fade away, pushing wage growth somewhat lower. In our view, average wage increased by around 6.3% yoy in August. This would still represent a relatively elevated pace compared with what we observed in the first half of the year. Nevertheless, such readings are likely to become the norm as labour demand continues to recover.
• Unemployment rate (our forecast August: 5.9%) In our view, the unemployment rate increased to 5.9% in August from 5.8% a month earlier. This does not reflect any deterioration in labour market conditions, rather the materialisation of a long-anticipated upward adjustment of 0.1 percentage points. We believe this increase stems from the cumulative impact of additional inflows into unemployment associated with reduced funding for labour market activation programmes.
• Current account balance (our forecast July: EUR -2500 mn) The Middle East conflict and resulting significant surge in imported fuel prices have pushed the trade balance back towards a deeper deficit in recent months (due to lower terms-of-trade: import prices higher than export prices). 
• NBP interest rate (our forecast September: 3.75%) The MPC will wait and see. Rates are unlikely to change this year.