Economic news

• INTEREST RATES: MPC member Gabriela Masłowska has expressed support for postponing further interest rate cuts until September, according to Bloomberg, citing an interview with the economist. She believes that the scope for monetary easing is limited by the expansionary fiscal stance, and any autumn rate cut might not be the last. Meanwhile, Cezary Kochalski expressed some doubts about the viability of his preferred scenario (an additional 75 bps in rate cuts by year-end), noting that the disinflation process could be disrupted by rising oil prices driven by conflict in the Middle East. 
• INFLATION: According to NBP data, core inflation continued to decline in May. Inflation excluding food and energy dropped from 3.4% to 3.3% yoy. The reading is slightly above our earlier estimate based on GUS data. Nevertheless, the disinflation trend remains intact, and the constellation of factors conducive to monetary easing remains firmly in place. 
• INDUSTRIAL OUTPUT: Industrial output accelerated in May to 3.9% yoy for 1.2% in April, slightly below the expectations of 4.4%. The details of May’s reading suggest a slight but broad rebound among most industry sections. 
• LABOUR MARKET: Wage growth decelerated sharply in May, slowing to 8.4% yoy from 9.3%, surprising the market consensus, which stood at 8.8%. As anticipated, the April surge proved to be temporary, and wage momentum declined to 8.6%, although it remains elevated by historical standards. Moreover, employment growth remained at -0.8% yoy in Maycompared to the anticipated -0.7%. This development represents a pessimistic signal for the labor market outlook in the current year. 
• FISCAL BALANCE: The central government budget deficit increased from PLN 91.4 billion as of April to PLN 108.3 billion as of May. The May shortfall (PLN 17 billion) exceeded the level recorded in the same period last year. The rolling 12-month cumulative deficit rose to PLN 266 billion. Despite this, tax revenue performance remains strong. In our assessment, the deficit rate of growth is expected to slow in H2, and the current budget plan for 2025 remains on track (no budget revision anticipated). Further analysis is provided in the latter part of this report. 
• ECONOMIC SENTIMENT: Consumer confidence indicators in Poland posted their strongest increase in June since the onset of Russia’s invasion of Ukraine in 2022. The Current Consumer Confidence Index rose by 5.2 points to -9.3. In our view, this notable improvement is structurally supported by rapid disinflation accompanied by continued strong wage growth. Nonetheless, historical patterns suggest that presidential elections might have also contributed to the improvement in consumer sentiment. 
• NATIONAL RECOVERY PLAN: The EU Council has formally approved the revision of Poland’s National Recovery Plan (KPO), which includes, among other measures, the creation of a Security and Defense Fund amounting to PLN 25 billion, according to the Ministry of Funds and Regional Policy following the EU Finance Council meeting in Luxembourg. This decision paves the way for the next KPO disbursement; ministers have indicated that the payment—estimated at approximately PLN 26 billion—may be released within the coming weeks, most likely in August. 

Poland’s government budget data suggest low risk of budget revision 

Last week, we learned about the state budget execution for May, and at first glance, it may have raised concerns. A deficit exceeding 100 billion PLN before the halfway point of the year does not sound good—especially considering that at the same time last year, it was half that amount (53 billion PLN). However, we know that these statistics are distorted by the effects of the local government revenue reform, as a result of which the Ministry of Finance has already transferred a total of 93 billion PLN in PIT revenues to local governments this year, compared to just 30.4 billion PLN by May last year. This largely reflects an acceleration in financing of local governments by the Ministry and a change in its structure (more taxes, fewer subsidies) rather than a real increase in funding. Therefore, we expect the monthly deficit growth to slow significantly in the second half of the year. As such, we currently see no risk that the Ministry of Finance will exceed the planned annual deficit level or be forced to revise the budget (as happened last year). 

If you look at the details of the execution of state budget this year, there are both good and bad news from the perspective of Poland’s fiscal stance. Let’s start with the good news. The biggest positive development is VAT revenue. Since autumn, it has been growing at a relatively stable rate of 15% yoy (on a rolling annual basis), and in May alone, it was 20% higher than a year earlier (PLN 26.5 billion vs. PLN 22 billion). This is important because in the first quarter of 2025, the VAT growth rate was inflated by a low base from the previous year due to the zero VAT rate on foods a year ago (as temporary anti-inflationary measure). In April and May, that effect diminished, yet VAT revenues did not slow down and remained above the nominal growth of consumption. 

The same, however, cannot be said about excise tax, despite the rate increases on alcohol and cigarettes at the beginning of the year. Still, this tax remains one of the brighter points in the state budget. PIT (Personal Income Tax) revenues are also increasing—if you combine what the state budget receives with the amounts additionally transferred to local governments. According to our estimates, the year-on-year growth of this tax is around 6%, which is slightly less than the growth of wages (8–9% yoy), but still positive 

There are two negative pieces of news about the state budget. One is the decline in CIT (Corporate Income Tax) revenues, which are down 28% on a rolling annual basis. Although this tax was also affected by the reform of local government financing, according to our knowledge, local governments are receiving similar revenues from it as last year. This means that the decline in budget revenues from this tax is real and is a consequence of the deterioration in the financial performance of the corporate sector last year. In the first quarter of 2025, the financial results of the corporate sector have already started to improve, so there is hope at least for a slowdown in the decline of CIT revenues for the state budget this year and a clear increase next year. 

The second negative piece of news is the stagnation of non-tax revenues, which consist primarily of dividends from state-owned companies, profit transfers from the National Bank of Poland (which have not been made in a long time and will not happen this year), and revenues from CO₂ emissions allowance auctions. 

In summary, the execution of the state budget appears to be roughly in line with the Ministry of Finance's plan, which means the deficit will be high (around 6% of GDP), but we do not see a risk of it unexpectedly exceeding that level as it did in 2024, nor of a need to revise the state budget. 

Financial market update

The war in the Middle East is not helping emerging markets, but it's also not causing a wave of sell-offs. The Polish złoty and domestic government bonds are performing relatively well. The EUR/PLN exchange rate is moving within a very narrow range (4.26–4.28). Yields on POLGBs are rising, but more due to hawkish comments from the Monetary Policy Council (RPP) than geopolitical factors—although it’s also worth noting the widening of spreads between Polish bond yields and those of core markets. 

Today’s calendar includes data releases for May’s wage growth and industrial production. In theory, these are important macroeconomic indicators for monetary policy, but the fact that conditions in Poland allow for interest rate cuts has been well understood for some time and from various sources. We don’t expect today’s data to be a game-changer or to impact the expected rate path. The RPP still needs more time to be ready for cuts—July seems unrealistic to us. We expect a rate cut in September. 

This week, we anticipate the continuation of current trends in Polish assets—continued increases in POLGB yields (though today we expect a downward correction of the recent rise), and stabilization of the złoty at current levels.