Economic news

• INFLATION: The CPI inflation rate in Poland for May has been revised down from 4.1 to 4.0% yoy in the second reading. Core inflation rate was around 3.1-3.2% yoy in the same month.
• RATES: L. Kotecki of the MPC said that he expects the NBP’s July inflation projection to be optimistic and open the door for further interest rate cuts. These might happen in July or September. The total size of cuts could reach 50bps by the end of 2025. His view is in line with our forecast, with us expecting the next cut to come in September.
• POLITICS: Last week, Poland’s prime minister D. Tusk requested a vote of confidence in Parliament following the opposition candidate K. Nawrocki’s victory in the presidential election. The vote passed, allowing the current government to remain in office.
• PUBLIC DEBT: Last week, the Ministry of Finance organized a switch auction, during which it bought and resold government bonds worth of 7.9 bn PLN. Additionally, Polish Development Bank (BGK) sold its own bonds (with government guarantees) worth 1.5 bn PLN.

Poland imports more than ever — from goods to capital

The trends in Poland’s balance of payments are relentless — in April, we once again recorded a deficit on both the current account and the trade balance (amounting to 374 and 941 million euro, respectively), and once again these figures were significantly higher than those observed a year ago. In fact, April 2024 was the last month when the trade balance was still in surplus. We discussed some of the trends visible in the balance of payments and in Poland’s foreign trade last month; today, we will approach the issue from a slightly different angle. 

Balance of payments and trade balance (12m rolling sum, % of GDP)

Source: NBP, StatOffice, Pekao Research

Over the past two years, Poland’s balance of payments has shifted from solid surpluses (current account surplus of 1.8% of GDP, trade surplus of 0.6% of GDP) to noticeable deficits (current account deficit of 0.6% of GDP, trade deficit of 1.5% of GDP). This adjustment amounts to 2 percentage points of GDP. In the past decade, this is the fourth such swing in Poland’s key external (im)balance indicators (see chart above). Interestingly, the scale of adjustment has been similar each time, and on average, over the course of a full business cycle, Poland tends to be broadly in balance with the rest of the world. This marks a major shift compared to earlier decades, when Poland typically operated with trade and current account deficits.

Why has the pendulum currently swung toward higher imports of goods and services? In addition to the strong zloty — particularly in real terms — the relative strength of domestic demand in Poland plays a key role, driving rapid growth in imports of both goods and services. Meanwhile, weak demand from Poland’s main trading partners has left Polish exports stagnating — over the past two years, the average annual growth rate of goods exports in euro terms has been -1% yoy.

Investment and savings balance of main sectors of Polish economy

Note: positive values signify surplus of savings over investment, in case of “rest of the world” the signify – net import of savings.

Source: Macrobond, Pekao Research

The above argument can be reframed slightly. In Poland, investment rebounded in early 2025. Basic macroeconomic identity states that investment is financed by savings, and total investment across all sectors equals total savings. In practice, however, some sectors finance others by lending their savings surplus. Currently, the main borrower is the government (7% of GDP), while the traditional surplus of savings over investment in non-financial corporations has significantly narrowed (from 8% to 4% of GDP). The savings-oriented behavior of households — which currently have a rare surplus of savings over investment (3% of GDP) — has only partially filled this gap. As a result, Poland now needs to import capital (foreign savings). The import of foreign capital is reflected in the current account deficit — and thus the circle closes. Interestingly, we can already observe some signs of this in the monthly balance of payments data: despite trade war-related disruptions, portfolio capital inflows remain solid, and FDI is rebounding.

Net inflow of FDI to Poland (% GDP)

Source: Macrobond, Pekao Research

Financial market update

The escalation of war in the Middle East might have triggered a flight to safe havens. So far, however, financial markets are relatively calm and valuations of Polish currency and assets are little changed: EUR-PLN remains stuck in the 4.25–4.30 range, while government bond yields have stabilized around 5.55–5.60% (for the 10Y tenor) following recent increases. So, the status quo remains — but not entirely. The latest inflation data (final CPI reading for May) showed that the disinflationary trend remains firmly in place, and conditions for inflation to return to target continue to be very, very favorable. Therefore, there is a significant room for rate cuts, with only expansionary fiscal policy currently holding the Monetary Policy Council back from taking more decisive action. This week will be somewhat unusual for one reason — before we see the hard data for May (next week), Polish Statistical Office will first release the soft data for June (consumer and business sentiment). In this situation, the most important domestic macro event may turn out to be the switch auction of government bonds — the previous one was considered exceptionally successful.