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Macroeconomic scenario

Economic growth

Following the release of a full set of May macroeconomic data we estimate GDP growth to have accelerated to 3.8% yoy in Q2. The first half of the year was thus a bit weaker than we had assumed. Should we be revising full-year forecasts downward? Not necessarily. Detailed data for the first months of the year showed surprisingly strong investment. Later revisions may lower it, but the beginning of the year was, according to current data, as good as we assumed originally. There is also a considerable low base effect in Q3 which makes acceleration of economic growth in H2 easier.

Economic activity, quarterly averages, % yoy)

Source: StatOffice via Macrobond

Inflation

Disinflation is entering turbo mode. Already in the third quarter, mainly due to base effects (this time on energy), we will see a significant drop in CPI to levels close to the inflation target (2.5%). It will remain in this area in the following months. However, core inflation will decline more slowly.
On average, CPI in 2025 will be close to 3.5%, similar to 2024.

Labour market

The labor market readings for May contradicted everything we observed in April. Firstly, wages, which surprised on the upside in April, disappointed in May, although they remained consistent with the long-term downward trend forecasted by both us and the consensus. This forecast remains valid; however, the wage growth trajectory is likely to be volatile. Secondly, the employment data for May revealed some weakness to the Polish labor market, tempering analysts’ enthusiasm following strong April figures. We reaffirm our long-term view of a slow and gradual recovery in this indicator. Among the May data, only the unemployment rate reading aligned with analysts’ expectations, as it has recently adhered closely to the seasonal pattern.

General government

We have revised our 2026 budget deficit forecast upward from 5.2% to 6.8% of GDP. The main reason is the decreasing likelihood of fiscal tightening by the government. The EU is applying less pressure for fiscal consolidation, and spending cuts or tax hikes are politically riskier following the presidential election victory of the opposition candidate. Additionally, budget execution to date has been less favorable than we had assumed. Public debt will continue its upward trajectory – according to our calculations, it will reach 63% of GDP next year, compared to 58% in 2025.

Public debt trajectory in Poland, % of GDP

Source: Ministry of Finance, StatOffice, Pekao Research

Monetary policy

Following the recent press conference of the NBP president and statements from MPC members, we feel comfortable with the forecast of 50 bps additional rate cuts by the end of the year. Recent comments from the MPC make a July cut practically impossible. At the same time, the prospect of looser fiscal policy after the elections will limit the MPC's appetite for rate cuts in 2026 and 2027. We expect the NBP reference rate to fall to 4.25% at the end of 2026 and to 3.75% at the end of 2027 (previously: 3.5% at the end of 2026 and 2027).

Financial markets

Holidays with weak US dollar

Weak dollar is the biggest surprise of 2025, but perhaps it shouldn't have been. The combination of turmoil over U.S. tariff policy, U.S. economic slowdown and (above all) the unwinding of long-standing bets on the US exceptionality (superior economic growth and asset returns relative to the rest of the world) has yielded a sharp move that has brought dollar indexes from multi-year highs down to multi-year lows - and all this while extending interest rate disparities between the U.S. and the rest of the world.

Traditionally, we express skepticism about big narratives related to the dollar. The dollar will not lose its role as a reserve currency any time soon (either in a transaction or investment roles), but investors have been forced to rethink their positions and views. In particular, something once unthinkable has been put on the table, namely the risk premium for holding dollar assets. This genie will not easily be put back in the bottle. At the same time, it's worth remembering that this is an evolution, not a revolution. The U.S. is still a giant economy, and valuations of its assets also depend on the value added generated by American companies, including overseas (after all, they are often global giants).

However, this is a multi-year, developing story. The dollar, for now, is looking for a bottom, that is, a point at which all negative factors will be priced in. Last month, we wrote that we are also waiting for the storm, i.e. the effects of higher tariffs and turbulence of the previous months. We'll know a lot after the vacations, as the effects of the pre-tariff production and shipping rush will disappear from soft and hard data. We will also see a more complete pass-through of tariffs on prices. Finally, over the holiday period we will find out whether the market is right to expect the US to lay down its arms in the trade war.

A rate cut too far

Up to a certain point, July looked like a sure bet for a rate cut, but surprises in the data, fiscal policy and the MPC's consistent communication derailed that scenario. So, we are back to autumn cuts. For the time being, our forecast of rate cuts (100 bps in total in 2025) has every chance of success, although the final detailed distribution of cuts over time may turn out to be different from any we have shown in forecasts so far. The holidays are also a good time for the market bet on further MPC moves to become more realistic. This process is admittedly already underway, but the market is still too aggressive (by about 25 bps) in pricing further monetary easing in Poland. This period will also be conducive to a significant expansion of our information set as to inflationary processes in Poland and the state of the Polish economy. We do not expect large movements in response to domestic data, but their combined impact will be important for markets.

Selected macro releases due this month

• Industrial production (our forecast June: 1,7% yoy). A less favorable arrangement of working days (0 vis-à-vis +1 yoy last month) will lead to a slowdown in industrial output in June. Corporate sentiment (PMI notwithstanding) improved recently, but we feel that this has already translated into firmer output growth in hard data.
• Retail sales (our forecast June: 6,2% yoy). We hold an out-of-consensus view and expect retail sales to accelerate due to low base in selected categories (food, clothing and footwear) and strong durables sales.
• CPI inflation rate (our forecast June: 4,1% yoy). A long-unseen surprise with higher inflation - according to the flash estimate, CPI accelerated in June to 4.1% yoy from 4.0% in the previous month. The surprise was accumulated in core inflation that according to our estimates amounted to 3.3%-3.4% yoy. However, we treat this as a one-off deviation from the dominant downward trend, and it is by no means a signal of a potential reversal of inflationary trends. In turn, ongoing hikes in fuel prices (caused by higher crude oil market prices) will only be seen in the data for July.
• Wages in the enterprise sector (our forcast June: 8,7% yoy). In June, we expect an acceleration in wage growth rate to 8.7% yoy, up from 8.4% in May. What underpins this forecast, given that for several months we have been pointing to a downward trend in this indicator? Firstly, this is due to a specific low-base effect from the previous year. Specifically, June of last year recorded one of the weakest June readings historically. We consider the low wage growth in June 2024 to have been a one-off occurrence. Secondly, last month saw a pay out of another tranche of wage raises at one of the mining companies, which will boost June reading by approximately 0.3 to 0.4 percentage points.
• Current account balance (our forecast May: EUR -120 mn). The story describing Poland’s trade balance remains unchanged – there has been a deficit since mid-2024. The problems of Polish exports have long been known (weakness of foreign trading partners, strong PLN), and now the trade war has joined the group of risks. Imports is driven by import-intensive private consumption (an increase in imports of intermediate and consumer goods), which is currently the engine of Poland’s GDP growth. We estimate the trade deficit in May at EUR 610 mn and the current account deficit at EUR 120 mn.
• MPC decision (our forecast July: no change). The balance of incoming data over the past month is not clear, and the Council is not inclined to aggressively ease monetary policy. For this reason, we expect rates to stabilize at the July meeting.