Economic news

• INDUSTRY: In March, industrial production increased by 9.4% yoy, significantly exceeding both the February reading (1.3% yoy) and the market consensus (4.1% yoy). The strong performance was broadly based across sectors, with as many as eight industrial sections recording double-digit growth. In our view, this reflects precautionary stock-building by firms amid concerns over potential components shortages linked to the war in Iran. We consider this to be the primary driver behind the robust March industrial output reading. Construction and assembly production rebounded slightly in March (+0.4% yoy) following a very weak February (-13.7% yoy); however, this is the only positive aspect worth noting. Further details on the latest data were discussed in our commentary released last week.
• LABOUR MARKET: Wage growth accelerated in March from 6.1% to 6.6% yoy, slightly above the consensus forecast (6.3% yoy). The upside surprise was driven primarily by bonus payments in the energy and mining sectors. Additional factors supporting wage dynamics included one extra trading day in retail (a pre-holiday shopping Sunday fell in March this year, not April as in 2025) and favorable weather conditions, which increased the number of working days in construction. Nevertheless, wage growth in Poland remains moderately subdued relative to the pace of economic growth and inflation. Employment in the enterprise sector disappointed, declining by 0.9% yoy compared with the consensus expectation of -0.8% yoy. A detailed commentary on data from the enterprise sector can be found here. At the same time, the number of foreign workers in the Polish labour market continues to rise, with the number of foreigners contributing to the social security system exceeding 1.3 million in March. The registered unemployment rate remained unchanged at 6.1% in March, compared to 6.1% in the previous month. This reading is consistent with the preliminary estimate published earlier in the month by the Ministry of Family, Labour and Social Policy. The number of registered unemployed stood at 949.8 thousand in March, down from 954.9 thousand in the preceding month.
• RETAIL SALES: Retail sales in real terms grew by 8.7% yoy in March, exceeding the consensus forecast by 3 percentage points. While this represents the strongest growth in four years, it was also supported by a confluence of temporary positive factors: the timing of Easter at the beginning of April, precautionary fuel stockpiling, a favorable calendar effect (working days and shopping Sundays), and improved clothing sales due to warmer weather. As such, we believe the March retail sales figure overstates the underlying strength of the Polish consumer.
• RATES: M. Zarzecki, a member of the Monetary Policy Council, delivered a relatively hawkish statement to Bloomberg, suggesting that interest rates are likely to remain unchanged for an extended period, although rate hikes cannot be ruled out if incoming data deteriorate. In his view, a rate-cut scenario is the least likely. J. Tyrowicz, in turn, emphasized that wage pressure remains a significant driver of CPI inflation, particularly as the Polish economy has entered another global shock with macroeconomic imbalances still unresolved. Her remarks referred to Tuesday’s data release by Statistics Poland, which showed a 5.7% mom increase in wages in the enterprise sector. However, as noted in our earlier commentary, current labour market conditions increasingly favor employers, and wage growth is expected to decelerate further (towards 5.5% yoy). Moreover, it has been reported that Members of the Monetary Policy Council Henryk Wnorowski and Joanna Tyrowicz, voted against the 25 basis point interest rate cut at the Council’s March meeting. In March, the MPC set the policy rate at 3.75%. This constituted the first rate reduction in 2026, following a cumulative easing of 175 basis points in 2025.
• MoF: Minister of Finance and Economy Andrzej Domański has rejected the proposal to sell gold reserves held by the National Bank of Poland to finance military expenditures.
• DEBT: According to the April fiscal notification by Statistics Poland, the general government deficit increased from 6.4% of GDP in 2024 to 7.3% of GDP in 2025, slightly above the preliminary estimate released two weeks earlier. The deficit is almost entirely attributable to the central government, while local governments recorded broadly balanced budgets last year. General government debt rose to 59.7% of GDP. The fiscal notification submitted to Eurostat projects a decline in the deficit to 6.8% of GDP in the current year, reflecting the Ministry of Finance’s stated objective to minimize the economic costs of fiscal consolidation while safeguarding investment and defense spending.
• MONEY SUPPLY: Broad money (M3) increased by 11.5% yoy in March, slightly above our forecast (11.0% yoy) and well above the consensus (10.7% yoy). Excluding the pandemic years 2020–2021, this marks the strongest monetary expansion since 2016. Monetary aggregates indicate a notable increase in currency in circulation (+15.9% yoy) and a strengthening recovery in investment activity, as reflected in investment lending growth (+15.2% yoy).

Poland's public spending at Swedish levels, revenues at Spanish levels

Last Wednesday was a day of fiscal notification in Europe, with Eurostat publishing a comprehensive set of annual and quarterly fiscal data. At the same time, Statistics Poland released detailed estimates of revenues and expenditures of the general government sector, including its sub-sectors. The headline figures contained in these publications were broadly unsurprising: Poland’s general government deficit increased from 6.4% to 7.3% of GDP, while in the EU it remained stable at 3.1% of GDP. Nevertheless, the data provide a useful opportunity to examine the structural changes that have affected public finances in both Poland and the European Union in recent years.

First, the level of public expenditure in Poland (as a share of GDP) now exceeds the EU average (51% vs. 49.5%), while general government revenues remain below that average (43.6% vs. 46.4%). According to the latest data, public spending in Poland in 2025 surpassed even that of the Scandinavian countries. Moreover, Poland’s social expenditure is only marginally lower, although this reflects to a greater extent the gradual retreat of Denmark and Sweden from their traditional welfare-state models rather than Poland’s convergence towards them.

Public expenditure (general government, % GDP)

Source: Macrobond, Pekao Research

Second, recent years have seen a marked increase in the share of public expenditure in GDP—from 41.4% in 2019 to 50.9% in 2025. Poland is among the frontrunners in this regard, but it is not an outlier: varying degrees of public sector expansion have occurred in all 24 EU Member States, with public spending increasing on average by 3 percentage points of GDP. Why? The drivers of this trend are multifaceted and cannot be attributed to a single factor. Both in Poland and across the EU, key contributors include higher defense spending, increased public debt servicing costs, measures to mitigate the effects of past energy shocks, and rising social expenditures. Consequently, any fiscal consolidation strategy based on expenditure cuts must confront the reality that the widening deficit is not driven by a single category of spending.

Public expenditure across EU Member States (% GDP; change in percentage points on the right-hand axis)

Source: Eurostat, Pekao Research

An alternative path to restoring fiscal balance involves revenue-side measures, notably tax increases. While politically contentious—and despite the fact that most major tax reforms in recent years have tended to reduce rather than raise statutory tax rates—the revenue side of public finances has strengthened. Indeed, the share of public revenues in GDP increased from just under 40% in 2022 to 43.6% in 2025. This increase is partly attributable to the freezing of personal income tax (PIT) thresholds, which has resulted in a growing share of labor income being taxed at the first (12%) and second (32%) brackets. As a result, the effective PIT rate has nearly returned to its pre-2022 level, prior to the tax reforms introduced under the Polish Deal, which lowered the base PIT rate from 18% to 12% and raised the threshold for the second tax bracket from PLN 85,000 to PLN 120,000.

Effective personal income tax (PIT) rate in poland (% economy-wide wage bill)

Source: Ministry of Finance, Pekao Research

A similar trend can be observed in corporate income taxation (CIT). Although the statutory CIT rate has remained unchanged, several reforms in recent years have effectively increased the tax burden—for example, restrictions on the deductibility of losses and the introduction of a minimum CIT. At the same time, certain measures have reduced the tax burden for selected entities, such as the expansion of eligibility for lump-sum taxation and the introduction of the Estonian CIT regime. On balance, however, the effective corporate tax rate has increased.

Effective corporate income tax (CIT) rate in Popand (% corporate profits)

Source: Ministry of Finance, Statistics Poland (GUS), Pekao Research

Financial market update

No major changes. Last week’s market jitters sealed the fate of the 4.22/EUR level – it held firm and the zloty exchange rate returned to around 4.24/EUR. However, one might surmise that a positive turn of events in the Middle East would revive bets on the zloty strengthening and allow it to resume its appreciation. For the interest rate market, on the other hand, the end of the week was quite fruitful – yields on Treasury bills rose by 2–8 basis points on Friday (though the rise was greatest at the short end, which is volatile in the case of Treasury bills), whilst swap rates rose by 2–3 basis points. Given the only slight increases in the spot rate (WIBOR), it can be concluded that the forward spread in Poland is rising again, and investors are implicitly pricing in the risk of a more restrictive monetary policy in the future, which can be linked, among other things, to further hawkish comments from MPC members. Concerns about the future shape of monetary policy are not without impact on the equity market sentiment, where the WIG20 has been in a downward trend for a week now. What would need to happen for the trend to be broken? If not a breakthrough in US-Iran negotiations, then a positive reading of April’s CPI inflation in Poland could significantly improve investor sentiment in the country.