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Macroeconomic scenario

Economic growth

Recent revision to annual national accounts data for 2025 raises the starting point for 2025, but does not impact our scenario for the upcoming quarters. 2026 is the year of investment and exports, but 2027 will bring some moderation in economic growth, from 3.7 to 2.9%. We have not altered our forecast since the previous publication.

Inflation

The inflation rollercoaster continues. The rather unexpected reinstatement of the CPN programme has lowered the inflation path through the end of the year by around 0.7 pp, but will also push inflation higher once the previous tax rates are restored. There is no end to the Persian Gulf conflict in sight, and the longer period of elevated fuel prices increases the risk of broader inflationary pressures spreading across the economy. This risk is amplified by the fact that, at the current stage of the crisis, prices of other energy sources, including gas and electricity, are also rising. We assume that, from the beginning of next year, higher energy costs will also be reflected in higher household energy tariffs.

At the same time, food prices are no longer contributing to disinflation and are set to become a significant source of inflationary pressure in 2027. Average yearly CPI will exceed 3% in 2026 and will be higher next year, with the inflation path remaining subject to volatile base effects. According to our forecasts, CPI will remain above the upper bound of the NBP's permissible deviation range around its inflation target over the next year. 

Labour market

Following a series of volatile wage readings in recent months, the Polish labour market appears to be entering a period of stabilisation. Wage growth is likely to anchor around 6%, while the unemployment rate is expected to remain at 5.8% for several months with a high degree of probability (unless labour force participation surprises, as discussed later in this report). Employment growth, meanwhile, appears to have settled at around -0.8% yoy. The balance of risks for all three indicators is tilted to the upside. Wage growth could continue to surprise modestly on the upside, supported by ongoing price pressures and a gradual recovery in labour demand. The latter also points to the possibility of a modest improvement in employment. As for the unemployment rate, the main risks are limited to a one-off step higher and the usual seasonal fluctuations.

Monetary policy

Rate hikes are now a baseline scenario – inflation will remain above target throughout 2027, economic growth proved to be very resilient and the global environment is an antithesis of low interest rates. We decided to raise our interest rate forecasts and we now expect the MPC to raise rates by 75 bps at the turn of 2026 and 2027.

Financial markets

Bonds are still unable to gain ground

It is said that no one who bought U.S. bonds with yields above 5% lost their job. Perhaps that is also the case in the current cycle, but so far, breaking the 5% threshold in 10Y treasuries has not served as a signal to buyers. On the contrary, bonds in the developed world have remained under pressure over the past month. The yield on the 10-year U.S. Treasury note briefly surpassed 5.35%. In general, news outlets and social media were filled with lists detailing which yield records had been broken recently. We stand by our assessment from last month – interest rates are abnormally high only if we consider the previous decade to be the norm. If we use the 2000s or even the 1990s as a reference point, current levels may even be too low under certain circumstances. Over the past month, the real 10-year interest rate in the U.S. rose by 50 basis points, to 2.9%. In the 1990s, it regularly exceeded 3.5%.

Interest rates may also turn out to be too high (if short-term rates fall in the future, those buying long-term securities today will earn very handsomely), but that would depend on macroeconomic data. What do we need for interest rates to fall? First, lower and less bulletproof economic growth. Second, a decline in inflation to the target (and thus, multiple inflation readings indicating improvement in this regard). Third, fiscal consolidation in developed countries (say, on the order of 3 percentage points of GDP). From this list, in the coming weeks we have, at best, a chance for lower inflation. Looking at it another way—it took the market months to believe in high rates. It won’t stop believing in them overnight.

Economists – traders 2:1

This is the third time the market has attempted to price in monetary tightening in Poland (March, May, August–September). The first two attempts assumed that rate hikes would occur in the short term, even as early as June or September of this year. That, of course, did not happen. This time, however, market pricing makes more sense, and the shift in economists’ forecasts in this direction reflects the fact that since the beginning of July, we have not had a single piece of news that would have an unambiguously dovish tone (we view the reinstatement of the fuel tax relief package as somewhat ambiguous). In our view, the Monetary Policy Council (RPP) will adjust interest rates to the changing reality and economic environment and raise them by 75 basis points. This will also support the zloty’s exchange rate. Current valuations, though weaker than in previous months, already factor in a higher interest rate path for the PLN. A disappointment from the NBP would certainly cause the EUR/PLN exchange rate to break through the 4.40 level.

Selected macro releases due this month

• Industrial production (our forecast September: 3.4% yoy) Working day count is unfavorable, yet industrial output is projected to hold firm in September. We do not see any reason to turn negative on Polish industry. In addition, August manufacturing output was unusually low and that should lead to a major rebound in September.
• Retail sales (our forecast September: 3.2% yoy) No major changes, with two exceptions. Fuel prices jumped in September as the oil shock intensified and tax relief was withdrawn. This will translate itself into one of the weakest fuel sales figures on record. We also expect clothing and footwear sales to disappoint due to warm weather.   
• CPI inflation rate (our forecast September: 4.0% yoy) September CPI inflation accelerated to 4.0% yoy, driven primarily by fuel prices that rose by nearly 10% compared with the previous month. Nevertheless, inflation excluding fuel prices remains broadly stable, suggesting that the energy shock has not yet generated broad-based pressure on the prices of other goods and services. Meanwhile, food prices started to rebound, increasing by 0.1% mom in September. They are still lower than a year ago, but the trend is clearly turning. However, core inflation surprised slightly to the downside this time, falling in September to about 3.2% yoy. This was likely driven by one-off movements in more volatile categories, while the underlying trend remains upward.
• Wages in the enterprise sector (our forecast September: 6.0% yoy) After substantial volatility in recent months driven by one-off factors, wage growth appears to have returned in September to a level that better reflects its underlying trend, stripped of statistical noise. We estimate that average wages accelerated to 6.0% yoy from 5.6% a month earlier.
• Unemployment rate (our forecast September: 5.8%) The unemployment rate has remained at the brink of reaching the 5.9% threshold for several months. Labour market conditions remain stable, and seasonal patterns point to little change in the indicator in September. We therefore expect the unemployment rate to remain unchanged. That said, difficult-to-predict fluctuations in labour force participation, which affect the denominator of the unemployment rate, constitute a potential source of upside risk to the reading.
• Current account balance (our forecast August: EUR -3150 mn) The Middle East conflict and resulting significant surge in prices of imported fuel and energy commodities have pushed the trade balance back towards a deeper deficit (due to lower terms-of-trade: import prices higher than export prices). Since then, monthly trade deficit has increased by an average of at least EUR 0.5 bn.
• NBP interest rate (our forecast November: 4.00%) The MPC will return to hiking this year, starting in November.