Economic news

• DEBT: Fitch Ratings affirmed Poland’s rating at an unchanged level during Friday’s review. The rating, at “A-”, has had a negative outlook for almost a year, and the lack of signs of improvement in the fiscal situation creates a risk that the rating itself could also be downgraded. Fitch refrained from taking such a step because of Poland’s solid economic performance as well as stable monetary and exchange-rate policy. However, the agency’s statement after the decision is full of warnings about Poland’s weak fiscal position. Fitch revised up its forecast for the general government deficit in 2027 from 6.2% to 6.7% of GDP. 
• PUBLIC FINANCE: Last week, the government presented a package of income tax reforms. The threshold for the 32% PIT rate is to be raised from PLN 120k to PLN 150k of annual income, while a new 24% tax bracket would be introduced for income between PLN 120k and PLN 150k. The tax-free allowance and the 12% PIT bracket would remain unchanged. The CIT rate would be raised from 19% to 22% for large enterprises with annual turnover above EUR 50mn, while a 30% CIT rate would apply to the energy and refining sectors. Overall, the changes would increase tax revenues by around 0.2% of GDP per year. If implemented, they would amount to a modest fiscal tightening. However, Poland’s president, K. Nawrocki, has already announced plans to veto the reform. More information on Poland’s fiscal stance and the proposed changes can be found later in the publication. 
• LABOUR MARKET: Wage growth accelerated in July from 5.9% to 6.8% y/y. This was well above the consensus forecast of 6.2% y/y. The surprise was driven primarily by higher-than-usual bonuses in mining, forestry and energy. Solid wage growth in trade and transportation also played a role. Employment also surprised positively, unexpectedly rising by 4k jobs compared with June. We wrote more about this reading here. 
• INDUSTRY: Industrial production was 5.1% higher y/y in July, slightly above the consensus forecast of 4.5% y/y. This marks a continuation of the long-standing expansion trend in Polish industry. This time, the acceleration in output was visible primarily in export-oriented sectors, including automotive and the production of electronic and electrical equipment. Construction activity, however, surprised negatively: in July it interrupted the strong run seen in 2Q 2026 and unexpectedly fell by 2.4% compared with July last year. According to Statistics Poland’s commentary, this was related to more irregular-than-usual settlements of construction works. You may find more information on these reading here. 

Poland’s fiscal policy and its repercussions in the spotlight

Last week in Poland’s fiscal policy was quite a busy one. On Tuesday, central budget figures for July were published. Cumulative fiscal deficit amounted to PLN 141 bn YtD, PLN 17 bn above the reading from June. In terms of a 12M rolling window sum the deficit was PLN 260 bn. This means that Ministry of Finance still has some room for expanding expenditures in 2H26, given that the all-year deficit has been planned for PLN 272 bn. There was quite an impressive growth in budgetary revenues (PLN 297 bn YtD in 2026 vs PLN 278 bn YtD in 2025) paired with a timid increase in expenditures (+ PLN 4.5 bn in YtD figures from July 2025 to July 2026). Yet the aggregate spending figures may be somewhat misleading, given that last year  the Ministry of Finance executed  a buy-out of COVID-19 bonds worth PLN 35 bn – which means that actual expenditure grew by approx. PLN 40 bn since July last year. Nevertheless, the data released in July confirms that:

• There is ample space for a boost in fiscal spending in the second half of 2026 with no revision to the Budget Bill. 
• Consumption in Poland remains strong (+9% y/y in VAT revenues despite temporary capping VAT rate on fuels) while corporate profits expand (+ PLN 3 bn y/y). 

On Wednesday PM D. Tusk and MoF A. Domański introduced a draft of a tax reform, aimed at tackling growing tax burdens of the middle class. In particular the MoF proposed to:

• Revise PIT parameters, moving from a two-rate system (12% to PLN 120k and 32% above PLN 120k) to a three-rate regime (12% do PL 130k, 24% from PLN 130k to PLN 150k, and 32% above PLN 150k) with unchanged tax allowance of PLN 30k. 
• Increase CIT rate from 19% to 22% for corporations exceeding EUR 50 mn in yearly revenues. 

Number of taxpayers in the 32% PIT bracket

Source: MoF, Pekao Research

The reform would benefit taxpayers earning at least PLN 120k/year; it is worth noting that from 2022 to 2024 number of such persons had almost tripled. Their effective PIT rate would go down by up to 2.4 p.p., i.e. PLN 3,600. The reform was designed to be roughly deficit-neutral, inducing PLN 9 bn losses on PIT revenues and PLN 12 bn extra in CIT revenues. However, after critical comments from the President’s office there are substantial chances for the reform to be vetoed.

Effective PIT rate  - actual and hypothetical post-reform

Source: Pekao Research

Both the discussed fiscal policy actions must have been considered by Fitch Ratings analysts. On Friday Fitch re-assessed Poland’s macroeconomic stance and affirmed its long-term issuer default rating at ‘A-‘ with negative outlook. Nominally it is a positive news: it has been almost a year since Poland’s outlook got revised from stable to negative, and there were worries that Fitch could eventually downgrade Poland from A- to BBB+. Yet the overall reception of the Polish fiscal policy arguably has deteriorated. Back in February Fitch had noted that a rating action could be triggered by ‘reduced confidence in the government’s ability (…) to implement additional fiscal consolidation measures.’ Now we read that a downgrade may result from ‘failure to reduce deficits’ – all the soft talk about confidence and expectations is gone. Therefore, we believe that the estimated deficit in the 2027 Budget Bill wil be of utmost importance. We foresee a fiscal consolidation of approx. 0.5% of GDP. 

Financial markets update

It was a good week for Polish zloty; however, it was due to external factors rather than domestic fundamentals. S. Bessent’s attempt to bolster up long-term Treasuries triggered a sale of US dollars; consequently, PL appreciated. On Friday, the zloty continued its cautious appreciation and approached 4.30 per euro. This was primarily driven by the weakness of the dollar (at least in the first half of the day). A thaw is also evident in the government bond market – despite rising yields in the core markets (i.e. in the US), we saw slight falls in yields domestically. The shifts in both yield curves were minor (1–3 basis points down), but ultimately they led to narrowing of spreads against the core markets. Given that Poland’s credit rating has not been downgraded – despite many market participants having anticipated such a move – we believe there is considerable space for government securities to gain momentum in the coming days. One may therefore expect yields to fall. Wednesday’s government securities auction will provide a good opportunity for this.