Economic news

• LABOUR MARKET: Number of newly registered unemployed persons unexpectedly rose by 14,8k in July compared to June and at the same time the number of people leaving unemployment register have fallen by 6k over the same period. As a result, Poland’s unemployment rate rose from 5.8 to 5.9% of labour force in July – according to preliminary data from the Ministry of Family, Labour and Social Policy. This came as a negative surprise, as the market cnsensus expected the unemployment rate to remain unchanged.

Were Fitch to downgrade Poland's rating, what would be the consequences?

In its last two reviews, Fitch has maintained a negative outlook on Poland’s rating, with an overall assessment of A-. We therefore see a risk that on Friday 21 August, Fitch may downgrade our country’s rating to BBB+. Although such a rating still places Polish government securities in the low-risk category (investment grade, not speculative), such a change could trigger adjustments in the Polish economy, particularly in economic policy. Whilst we believe that the fixed-income market (POLGB and interest rate market) in Poland will remain relatively stable (i.e. there will be no sell-off of government bonds), a revision of the credit rating could put pressure on the government to accelerate fiscal consolidation.

A long road to a downgrade

Poland’s credit rating, particularly for long-term debt denominated in foreign currencies, is a key indicator of the risk associated with purchasing bonds issued by the Polish government. Fitch is one of the three major credit rating agencies that assign these assessments.

On 5 September 2025, Fitch, whilst maintaining the A- rating, changed Poland’s outlook to negative. Subsequently, on 27 February this year, the agency reaffirmed these ratings. The organisation cited several reasons behind this decision; all of them boil down to an imbalance in public finances. The February commentary explicitly states that a factor that could trigger a rating downgrade would be ‘reduced confidence in the government’s ability to (..) implement additional fiscal consolidation’. In particular:

• In September 2025, Fitch noted that the general government deficit had increased since the previous review and forecast that it would stand at 6.7% of GDP in 2025. In its February review, Fitch estimated last year’s deficit at 7 per cent, which is significantly above the median of 2.9 per cent for ‘A’-rated countries. Furthermore, according to the latest Eurostat data, the general government deficit stood at 7.3 per cent last year, indicating ongoing fiscal expansion. For obvious reasons, this will not have a positive impact on the rating. In our view, Poland has already passed the peak of its deficit; we expect consolidation of around 0.5% of GDP per annum, but it is doubtful whether this will be sufficient to satisfy the agency.
• Expenditure by the general government sector has also risen: according to the latest data, it now stands at 50.9 per cent of GDP, which is largely due to the rising cost of servicing public debt and high social security expenditure. This figure is also above the European Union average (49.5 per cent of GDP).
• Since Fitch assigned Poland a negative outlook, public debt has risen, with the prospect of its further deterioration. The agency forecasts that, from 2024 (55.3% of GDP) and 2025 (59% of GDP), debt will rise to around 70% in 2027, which would be in line with our forecasts and, at the same time, well above the ‘A’ median of 56% of GDP.

Fitch emphasised that it would monitor the legislative process in Poland to assess the likelihood of fiscal consolidation being successfully implemented. Presidential vetoes on the windfall tax in the energy sector, the sugar levy, the increase in excise duty on alcohol and the extension of the SENT system are, in practice, hindering efforts to balance the budget.

General government debt and deficit: historical series with a forecast

Source: Statistics Poland, DG ECFIN, OECD, AMECO, Macrobond, Pekao Research

Rating downgrade consequences

We stand by our forecast from last year that a potential downgrade by Fitch would trigger only a moderate reaction in the fixed-income market; in particular, there would be no sell-off of Polish government securities nor any sharp rises in yields. The stability of government bond yields stems from the strong fundamentals of the Polish economy (we have recently presented a full report on this subject in London), in particular:

• Sustained macroeconomic convergence – Poland is essentially the only major EU economy catching up with the US in terms of wealth;
• Strong economic growth – the forecast GDP growth rate for this year of 3.5% year-on-year at constant prices positions Poland as Europe’s growth leader;
• Resilience to crises – business surveys and credit market data show that the oil crisis has had a mild impact on Polish firms, which have maintained their growth momentum and appetite for investment despite geopolitical turmoil;
• A balanced economy – rapid growth is taking place against a backdrop of minimal wage pressure, a closed output gap and prospects for monetary easing in the future.

Furthermore, historically speaking, rating downgrades have not led to an increase in yields on Polish government securities, which have been on a downward trend since Poland’s accession to the EU in 2004, a trend that was only disrupted by Russia’s aggression against Ukraine in 2022.

Fitch rating revisions plotted against sepected macrofiscal variables

Source: Fitch Ratings, Eurostat, DG ECFIN, MoF, Macrobond, Pekao Research

In our view, the most likely consequence of a potential rating downgrade will be an intensified search for easily implementable measures to reduce the budget deficit. We are aware that, given the election timetable, finding such solutions may prove to be an extremely challenging task.

Financial markets update

The domestic market remains in holiday mode, and volatility in the zloty and POLGB yields was exceptionally low last week. Friday’s weakening of the dollar was also supportive for domestic assets. EUR/PLN ended the week slightly below 4.30, while for most of the week it had hovered above this level. In the coming week, the key release will be the flash GDP growth estimate for Q2 2026 — we expect growth to accelerate from 3.5% to 3.9% y/y, , supported by strong industrial production and retail sales data recorded over the past three months. The closure of the Strait of Hormuz appears to have had only a limited and short-lived impact on the Polish economy, mirroring developments elsewhere.

A stronger-than-expected GDP reading could somewhat reduce expectations of an MPC rate cut in September, lending support to the zloty and putting downward pressure on bond yields. That said, any market reaction is likely to remain limited, as summer trading conditions continue to suppress volatility.