Economic news

• INTEREST RATES: Two MPC members chipped in last week. According to G. Masłowska, current inflation projections imply that the MPC’s next move would be a rate cut and that there is space for no more than one cut this year. M. Zarzecki took the hawkish side of the spectrum. He sees any rate cuts this year as premature and negative for the PLN. He interprets current conditions and projections as conductive to rate hikes, not cuts.  
• PRICES: Statistics Poland confirmed that CPI inflation fell to 2.5% yoy in June. Our initial estimate of core inflation was also spot on – inflation excluding food and energy fell from 3.1 to 3.0% yoy (other core inflation measures, as the NBP reported, fell even more). Detailed CPI data shed some light on the sources of surprise – food prices surprised to the downside due to low fruit prices. Recent increases in oil prices and the phaseout of temporary tax cuts on fuels have lifted the CPI path near-term, but we expect it to remain in the 2.5-3.0% range until the end of the year.
• INDUSTRY: Output in manufacturing increased by 7.6% y/y in real terms, broadly in line with market expectations. The same can be said about construction output (+5.2% y/y).
• LABOR MARKET: The registered unemployment rate declined by 0.1 pp., to 5.8% in June, according to the preliminary estimate released by the Ministry of Family, Labour and Social Policy. The reading was in line with our forecast and the consensus. Wages went up by 5.9% y/y – a positive surprise generated by a salary spike in manufacturing.
• BUDGET: State budget run a PLN 124 bn deficit in the first half of the year, 6 bn above the corresponding period of the previous year. June alone raised the deficit by PLN 15.5 bn compared to 11.4 bn last year. The release is a mixed bag – big jump in non-tax and CIT revenues was offset by weak PIT and indirect tax revenues. A more detailed dive into the data can be found in the next section.  In addition, the Ministry of Finance commented that fiscal consolidation is hampered by high share of mandatory spending in total government spending. Fiscal consolidation will be slow, but in line with national and EU budget rules. We expect it to net 0.5 p.p. of GDP from general government deficit.
• CREDIT: Mortgage applications rose by 14.5% yoy in June and reached 43k, the credit bureau (BIK) said. This implies that mortgage demand remains elevated compared to last year’s average or the pre-pandemic norm. A significant portion of the applications (perhaps 1/3) are for refinancing. Nevertheless, even after stripping out refinancing, core mortgage demand is strong.
• BALANCE OF PAYMENTS: Current account deficit amounted to EUR 1.1 bn in May, with elevated trade deficit (EUR 1.2 bn). In nominal terms, imports rose by 3.7% yoy and exports by 5.5% yoy. As in the previous months, exports was buoyed by copper and silver shipments (mostly a price effect), but slowed down by the automotive sector. Oil and gas prices rose, but the impact on total imports was somewhat offset by lower volumes.

State budget in 2026: not great, not terrible

Yesterday we saw the figures on the implementation of the state budget for June, so this is a good time to take stock of the fiscal situation in the first half of 2026. It is clear that the starting point is not the best. For over three years, Poland has been operating with a deficit exceeding 6 per cent of GDP and with rapidly rising public debt. Although the Ministry of Finance has taken certain consolidation measures (a higher corporate income tax rate for banks, the KSeF), these are limited in scope, so a rapid reduction in the deficit is not to be expected. Especially as, in the meantime, we have experienced a fuel crisis, which has already incurred certain costs for the state budget (lower VAT and excise duty receipts), but has not (yet?) generated additional revenue from the windfall tax.

Expectations regarding the implementation of the state budget in the first half of 2026 should not, therefore, be too high. Eventually, the economic reality has brought a neither-negative-nor-positive surprise. State budget revenue rose by 5.5% year-on-year during this period (tax revenue by 5.1%), which was slightly faster than the growth in expenditure (+4.8% year-on-year). This helped to stabilise the budget deficit, but did not reduce it.

Source: MoF, Pekao Research

A closer look at the breakdown of tax revenue reveals, on the one hand, sluggish growth in revenue from consumption taxes (VAT and excise duty). In the first half of the year, these were only slightly higher than in the corresponding period of 2025 (+1.1% y/y), meaning they grew even more slowly than inflation, not to mention the nominal GDP growth rate (around 7% y/y). This is only partly due to the CPN programme, i.e. the reduction in indirect taxes on fuel from April to June. The general slowdown in consumption this year is also casting a shadow over these taxes. The national e-VAT invoice register has not yet yielded results in terms of tightening up the tax system, although a final verdict on this matter is still pending, as the KSeF has also shortened the period for refunding overpaid VAT from 60 to 40 days, thereby artificially understating VAT revenue in year-on-year comparisons. For 2026 as a whole, revenue from indirect taxes is expected to be approximately PLN 10 billion lower than projected in the Budget Act.

Source: MoF, Pekao Research

However, the Ministry of Finance’s figures contain not only negative but also positive surprises. These include, first and foremost, revenue from corporate income tax (CIT). In the first half of the year, the state budget collected a total of 45 billion zlotys from this source – a quarter more than in the corresponding period of 2025. This is largely due to the higher CIT rate applied to banks, but that is not the only explanation. We are also likely seeing an improvement in the profitability of Polish companies this year. Non-tax revenue for the state budget also provided a positive surprise in June. For the first time in a very long while, it exceeded PLN 10 billion; previously, this had only occurred in conjunction with the National Bank of Poland’s profit distribution, whereas this time – according to the Ministry of Finance’s statement – it was solely the result of higher dividends from state-owned companies.

Source: MoF, Pekao Research

In summary, the implementation of the state budget in the first half of the year can be assessed as stable and in line with expectations. Positive surprises (corporate income tax and non-tax revenue) are more or less offset by negative ones (VAT and excise duty), whilst the growth in public expenditure has slowed compared with 2025. It is also worth bearing in mind that, for the health of public finances, what happens in the extra-budgetary funds – those managed by Poland’s development bank BGK – is almost as important as the state budget itself. Last year, this area delivered a significant negative surprise and pushed the overall public finance sector deficit above 7 per cent of GDP. This year may be similar. The state budget itself, however, points to a stabilisation of the public finances, with the prospect of a slight improvement.

Financial markets update

This is not a good time for Polish assets. Rising risk aversion has pushed the zloty back up to the upper end of the newly established trading range (4.32–4.35/EUR), sent the yield on the Polish 10-year bond beyond 5.60, and caused the major local stock indices to pull back from their recent highs. The reason, of course, is the ongoing conflict in the Persian Gulf. Is there anything that can divert the market from following global trends and capital flows driven by risk aversion or risk appetite? This week is packed with local events: a slew of macroeconomic data releases and a Treasury bill auction. So, there’s a chance that local factors will take the wheel in the coming days.