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Macroeconomic scenario

Economic growth

The start of the second quarter was not bad for the Polish economy (positive surprises in trade and industrial data), but it is too early to refine our GDP growth forecast for the quarter – we continue to assume an acceleration relative to Q1. Detailed data for the first months of the year showed a 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. We therefore do not change our forecasts for the whole of 2025 (GDP growth 4%, investment  >8%).    

Inflation

Disinflationary environment. The second quarter of 2025 brought a planned decline in inflation, which was greatly supported by the high reference base effect from last year (on food prices). After the recent announcement of the URE (energy regulatory office in Poland) to reduce gas tariffs for households from July and with no pressure from  commodity prices (including drops in fuel prices), we have to update our inflation outlook. Already at the beginning of the second half of 2025, CPI will very likely reach the direct inflation target of 2.5% yoy, also due to further base effects (this time on energy), remaining close to this level until the end of the year. However, core inflation will decline much more slowly. On average, annual CPI inflation in 2025 will be close to 3.5%, similar to 2024.

Labour market

April brought some revival to the domestic labour market. For the first time since June 2024, we observed an increase in the annual employment growth rate, which we interpret as the beginning of a long-awaited recovery of this indicator. However, this recovery is expected to be relatively slow and gradual. The unemployment rate details also delivered a positive surprise – although the headline figure aligned with consensus expectations, the decline in the number of the unemployed was notably strong. As a result, we anticipate an acceleration in the pace of unemployment rate reduction in the coming months. Wages also presented a significant surprise, which may act as a counterbalance to the recent disinflationary signals in the discussions within the Monetary Policy Council. Nonetheless, this is not a sustainable phenomenon, and wage growth rate should soon return to approximately 8% yoy.

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 inflation surprises have probably shifted their timing - a cut in July is more likely than before. 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

Sowing is complete, reaping still ahead of us

Major steps backward have been taken in US trade policy: United States and China have decided to talk instead of imposing triple-digit tariffs on each other, U.S. courts are likely to invalidate tariffs imposed under the Emergency Economic Powers Act and the escalation of the trade war with the EU lasted one weekend. Not surprisingly, other topics are beginning to emerge from the noise, namely US fiscal policy and the state of the US economy. 
The default assumption of the markets seems to be that removing the threat of high tariffs should return the economy and market valuations to, respectively, the state and levels before Liberation Day. 
This, however, ignores the actual cost of higher tariffs to US consumers (this impact is only being felt now), the effects of heightened uncertainty and various pockets of weakness (labor market, real estate market). The U.S. economy is slowing not only on paper, but also in a very real sense. At the same time, relief from monetary policy will not come soon, which is a recipe for further slowdown. As we have mentioned many times, we do not believe in a significant, magical increase in the potential growth rate and the equilibrium rate on any other scale than that resulting from the expiration of the deflationary factors of the previous decade (which is a small one). 
Donald Trump has sown the wind, so now we wait for the whirlwind, i.e. the real effects of current US economic policies.

From politics to policy

The presidential elections have revived interest in Polish politics. We do not overestimate their short-term significance, but some effect on the valuations of Polish assets has been observed so far. However, it is worth considering how this will play out in the medium term. This, in turn, requires a shift from politics to (fiscal and monetary) policy. Continued cohabitation takes off the table all sorts of scenarios for faster or more decisive fiscal consolidation in Poland, given the threat of a presidential veto and the potential political costs ahead of the next parliamentary elections. We do not expect fiscal policy to be actively eased, but the distribution of risks to the deficit path has changed. We already know that the MPC is concerned about fiscal policy. 
A looser fiscal policy will, in our view, be offset by a tighter monetary policy. This, of course, does not mean rate hikes or even no rate cuts at all - with the current outlook for falling inflation, this would be inconceivable. Nevertheless, the downward path of interest rates should be seen as less steep than we assumed and the market still assumes.