Economic news

• INFLATION: On Friday Statistics Poland published final CPI prints for January and February, calculated using updated CPI basket weights. January inflation was revised slightly downwards (from 2.2 to 2.1% yoy) and inflation held steady the following month. These prints are mostly of historical significance now, since inflation is set to jump in the following months due to the Gulf war. A more detailed comment on latest inflation prints can be found here.
• LABOUR MARKET: Unemployment rate rose from 6.0 in January to 6.1% in February, preliminary data from the Ministry of Family, Labor and Social Policy showed. Granted, the print matched market consensus, but the details are concerning. The numer of unemployed jumped by 22 thousand mom, significantly above seasonal patterns (less than 10 thousand). However, the data might have been disrupted again, this time by a decrease in funding for active labor market policies. This might have reduced the outflow from unemployment considerably and led to a larger-than-usual jump in unemployed headcount. It is difficult to quantify this effect absent detailed data, but we expect it to be significant. If anything, the deterioration in the labor market has been very gradual and nothing particular that would warrant a major downward shift happened in February.
• RATES: Multiple MPC members talked to the media last week (Janczyk, Kotecki, Masłowska, Tyrowicz, Zarzecki). The overarching theme in their public statements is caution. The MPC is basically unanimous in their decision to pause rate cuts until further notice (possibly until the end of the year) and adopt wait-and-see stance in the aftermath of the Gulf war. The Council generally expects inflation to increase immediately, but still average close to the target this year. The MPC members are neither unanimous, nor convinced as to what the next MPC move should be. Resumption of rate cuts in the latter half of the year is possible, as are rate hikes in negative scenarios.
• NBP: The NBP governor said during last week’s press conference that the NBP stood ready to actively manage its gold holdings, if the country’s interest demanded it. The NBP would start taking profit on its gold and transfer the proceeds to the state budget, as envisioned by the NBP and President’s joint proposal on alternative financing scheme for military spending. The proposal is, however, theoretical since the government declined to participate.
• MILITARY: Following the President’s veto to the bill creating a new financial vehicle for disbursing EU SAFE loans, the Council of Ministers adopted a resolution outlining an alternative. SAFE funds would be drawn by BGK for the existing Armed Forces Support Fund.
• DEBT: The Ministry of Finance cancelled the switching auction planned for last week and BGK cancelled its sale of FPC-series bonds. The BGK informed PAP that previous auctions allowed the bank to finance 60% of its borrowing needs, thereby allowing for flexibility.

Time to revise our forecasts

The Gulf war is like Proteus from Greek mythology – it is constantly changing shape. In one moment it looks like a serious conflict that will destabilize the entire Middle East for years to come. The next day, it seems as though it might end soon without major consequences, TACO-style. However, the world does not stand still, energy prices have risen, and we must adapt our scenarios to this new reality. We assume the following: 

• The war will have lasting, though not necessarily serious, consequences. The Iranian authorities have weathered the initial blows and do not plan to capitulate. A scenario similar to the incursion into Venezuela or the so-called 12-Day War in 2025 is therefore already ruled out. However, the conflict will most likely lose much of its intensity. Iran has lost most of its offensive capabilities. Meanwhile, the U.S. has been spooked by oil prices at $120 and is signaling a willingness to de-escalate. Lower intensity does not, however, mean a return to the situation prior to February 2026.
• The Strait of Hormuz will soon be opened, as too many actors – the U.S. administration, the Gulf states, China, and other consumers of energy resources – have a stake in maintaining this trade route and reducing upward pressure on energy prices. Shipping here will, however, become permanently riskier, somewhat like in the Gulf of Aden destabilized by the Houthis. The Gulf states will also bear the costs of rebuilding, expanding, and securing infrastructure. Costs that they will partially pass on in the prices of energy commodity.
• In our baseline scenario, we assume that in 2026, Brent crude oil will cost an average of between $70 and $80 per barrel, which is 25–30% more than at the end of 2025. In Europe, LNG prices will rise by a comparable margin, to €50/MWh (from €30 at the end of 2025).
• This will exacerbate Europe’s structural problems with high energy costs and unprofitable industry. It will also have an impact on global economic growth, particularly in developing countries, including China.
• In our view, higher fuel and energy prices will push up inflation in Poland by 0.5 percentage points —to 2.6% y/y in December 2026. This is not a major concern for the Monetary Policy Council (RPP), so we expect it to resume interest rate cuts, but only around the turn of the year, once it is certain about the macroeconomic situation. By the end of the year, the NBP rate will stand at 3.50%. Rate cuts in the US are also being pushed back to the fall, and in our view, the ECB will abandon them altogether.
• Rising energy costs will negatively impact consumption in Poland, as they first reduce household purchasing power and second weaken the already fragile bargaining position of employees in wage negotiations with employers.
• The main driver of the Polish economy this year—investment—will not be slowed down, as it has solid sources of financing (including the National Reconstruction Plan and SAFE in one form or another). Therefore, in our view, the slowdown in GDP growth resulting from the war in the Middle East will not be severe. We are revising our forecast for this year from 4.0% to 3.8% y/y. 

Change in energy prices since the beginning of the year

Source: Refinitiv, Pekao Research

Polish GDP prior to and after revisions (% yoy)

Source: Statistics Poland, Pekao Research

CPI in Poland – old and new trajectory (% yoy)

Source: Statistics Poland, Pekao Research

Financial market update

On Friday, volatility in the FX market dropped significantly (it was one of the dullest sessions since the outbreak of war in the Middle East), while interest rate markets were in the spotlight. Owing to global trends and cautious comments from the Monetary Policy Council (ruling out further rate cuts for now), we saw a continuation of the sell-off in government securities. Treasury yields rose by 15-20 bps (!), while IRS rates jumped up by 10-15 bps. This is a good moment to summarize the state of play on domestic fixed-income markets. Since the outbreak of the war, the 2-year swap rate has risen by 80 bps (!), so it will come as no surprise to say that this has turned scenarios regarding domestic monetary policy upside down. In the last week of February, the market still strongly believed in continued rate cuts—the plural is intentional here, as it wasn’t just about the March rate cut. Now, rate hikes have appeared on the curve—and on a significant scale, as they would amount to 75 basis points (!!!) over the course of the year. This is a massive swing that is not justified by the MPC’s rhetoric or inflation outlook. However, it fits perfectly with regional and global trends. This is because wholesale markets are assuming that rising oil prices and capital outflows will play out in the EM universe just as they often have in the past, limiting the monetary sovereignty of EM countries and forcing them to raise interest rates. Does it have to be this way? Not necessarily, but it is too early to differentiate, and Polish assets are behaving like those of a typical emerging market. One could say that we are all Brazilians now.