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Macroeconomic scenario

Economic growth

Detailed GDP data for Q1’26 are out: economic growth was slower, consumption was weaker and investment surprised to the upside. At the same time, the last CPI print shifted the expected inflation path downwards by a considerable amount. All points to lower consumption over the short term, but downside risks for 2027 are diminished. No change to the Polish investment story. Don’t expect major revisions to GDP growth forecast.

Inflation

The significantly lower-than-expected May inflation reading (due to a surprising drop in food prices) forced us to lower our forecast inflation path. In the coming months, CPI will remain above 3.0% yoy, reaching a local peak at around 3.5% yoy towards the end of the year (compared to the previously expected 4.0%).
So far, we have not observed any significant second-round effects related to rising fuel prices, although the risk of them appearing in the coming months remains. Market prices of crude oil remain elevated, and even if the conflict in the Persian Gulf de-escalates, they will not quickly return to pre-outbreak levels. The average annual CPI in 2026 will be around 3%.

Labour market

All data released over the past month from the domestic labour market were overshadowed by the wage reading. We observed the lowest growth rate in five years, which provides strong support for our forecast for the current year (5.5%) and constitutes clear evidence of persistently weak labour demand. This was supported by the latest employment growth figure, which has stubbornly remained at a subdued -0.9%. Meanwhile, the unemployment rate has remained relatively stable, once the effect of reduced funding for labour market activation programmes is taken into account. The dominant theme of Poland’s labour market continues to be “stagnation”, while for wages the prevailing direction remains unequivocally “downward”.

Monetary policy

The Gulf War – even if put on hold by the ceasefire – quenched any appetite in the Polish MPC for rate cuts this year. The market is pricing in a slight tightening of monetary policy, but this is not the Council’s (or private forecasters’) baseline scenario. Nevertheless, the MPC turned hawkish and the balance of risks is tilted towards hikes, not cuts. We expect rates to be unchanged until the end of 2027.

Financial markets

Bond markets are lifting decade-old anchors

No one asked for it, but everyone priced it in—we’re talking, of course, about the mini-cycles of interest rate hikes (50–75 basis points, depending on the country) that major central banks have initiated or will soon initiate. Markets caught on to the global shift in monetary policy fairly quickly, and, with the exception of the United States, target rate forecasts have not changed significantly since early March. It took forecasters longer to reach this point, but the direction of the consensus is clear.

What can we learn from this episode? First and foremost, that the years 2010–19 are a thing of the past. Neither central banks nor markets are behaving as they did during the decade of demand shortages, persistently low inflation, and essentially cost-free loose monetary policy. Certain popular assumptions about business cycles should also be shelved: in recent years, economic growth has fluctuated, but even the eurozone—weighed down by an energy shock, structural problems, and tight monetary policy—did not fall into recession. On top of that, stronger arguments for higher interest rates have emerged, ranging from fiscal policy and “no-frills” policy to the AI boom and its implications for the cost of capital.

It is difficult to break free from the mental anchors cast during the 2010–19 period, but we strive to do so every day. What does this mean for the markets? It means that higher interest rates are here to stay, and for now, there is no prospect of a return to the secular downward trend in rates that allowed bondholders to make a fortune in the previous decade. The question now is: what would bring relief to the bond markets? A few examples: a definitive end to the conflict in the Persian Gulf, fiscal consolidation in major economies, and the cancellation of interest rate hike cycles.

PLN assets poised to appreciate ahead of holidays

Not much is happening on domestic markets, but we get the impression that this is the calm before the storm. The only question is whether the storm will arrive before the summer holidays. It is always worth noting that the fundamentals underpinning Polish asset valuations are positive. Let’s start with the zloty—technical analysis experts will notice that a beautiful, textbook-perfect flag pattern has emerged on the EUR/PLN pair. This is a continuation pattern that signals further appreciation of the zloty. Meanwhile, the bond market passed the test: the 6% mark on the 10-year yield was not sustainably breached, spreads relative to core markets stabilized at moderate levels, and confidence in rate hikes was undermined by comments from the Monetary Policy Council (RPP) and the dovish tone of the latest CPI inflation data. In short, the arguments for a strengthening of Polish assets have gained traction, while those for their weakening have lost significance or become outdated. Additionally, we are currently in a period of limited supply of government securities, which further supports this market.

Selected macro releases due this month

• Industrial production (our forecast May: 3.4% yoy) After a few months of heightened volatility in industrial output growth rates, time has come for more stability and calm. For the second month in a row industrial production is set to grow by ca. 3% yoy. Taking a broader picture – we don’t see any meaningful impact from the Gulf war on aggregate levels of industrial production in Poland.
• Retail sales (our forecast May: 3.6% yoy) Easter-related swings in retail sales are behind us and May brought some normalization to these figures. The acceleration in retail sales is associated with favorable weather conditions and low base effects in some categories. Fuel stockpiling has likely ended, pulling retail sales in the other direction, by lowering fuel sales growth.
• CPI inflation rate (our forecast May: 3.1% yoy) The May inflation reading came as a significant positive surprise – it slowed to 3.1% yoy instead of accelerating to the market-forecasted 3.7%. The main source of the surprise were food prices, which seasonally rise in May, however this year they declined by 1% mom. Core inflation also proved lower-than-expected (stabilization at 3.0% yoy). The data suggest that the second-round effects of higher fuel prices remain limited for now.
• Wages in the enterprise sector (our forecast May: 6.0% yoy) The same factor that pushed the wage reading downward in April drove it upward in May - namely, the high base for wages, which rolled off last month. Severance payments in the mining sector may also have contributed at the margin. Accordingly, we forecast an acceleration in wage growth to approximately 6%.
• Unemployment rate (our forecast May: 5.9%) In our view, May brought a decline in the unemployment rate to 5.9% from 6.0% in April. This fluctuation is consistent with seasonal patterns and the stable conditions prevailing in the domestic labour market. We remain attentive to the impact of reduced funding for labour market activation programmes for the unemployed; however, in April this effect was limited (+7k unemployed mom). In May, the magnitude of this effect should be similar, and therefore we assess the likelihood of a decline in the unemployment rate to 5.8% as low (although it would be significantly higher in the absence of this factor).
• Current account balance (our forecast April: EUR -810 mn) The trade balance has passed its cyclical low and is gradually emerging from the deficit, with exports rebounding. Unfortunately, the Middle East conflict and resulting significant surge in imported fuel prices will push the trade balance back towards a deeper deficit (due to lower terms-of-trade).
• NBP interest rate (our forecast July: 3.75%) The MPC will wait and see. Rates are unlikely to change this year.