Economic news

• PL-CONSUMPTION: In July, retail sales in constant prices were 3.9% higher than a year earlier, which was significantly lower than the previous month (6.2%), but roughly in line with our forecast (4.1% y/y) and only slightly below the consensus forecast (4.5% y/y). The slowdown in retail sales compared with June can be attributed to the expiry of the CPN scheme (capping fuel prices). Setting aside this temporary effect, retail sales have been growing for many months at a stable, moderately high rate. In July, this primarily with respect to durable goods, namely furniture, audio-visual and household appliances, as well as cars and car parts. We have written more about yesterday’s figures here.
• PL-INVESTMENT: Corporate investment expenditure in the first half of the year rose by 13.7 per cent year-on-year to PLN 100.2 bn. This was a very good result which confirmed that Poland is experiencing an investment boom.
• PL-INTEREST RATES: Ludwik Kotecki of the Monetary Policy Council (RPP), referring to the macroeconomic data for July, expressed the view that the Polish economy is accelerating in Q3 2026, but without any significant inflationary pressures. This suggests that MPC members still have a moderately dovish stance and are considering resuming interest rate cuts, although this does not mean that such a decision will be taken any time soon.
• PL-M3: In July, the money supply rose by 11.3% y/y – slightly slower than the previous month (11.8% y/y) and below the consensus forecast (11.7% y/y).
• PL-LOCAL GOVERNMENT: Local government investment expenditure in the second quarter totalled PLN 24.65 bn, compared with PLN 25.8 bn in the same period of the previous year, according to data from the Ministry of Finance. Unlike the corporate sector, there is no sign of an investment boom in local authorities – capital expenditure has remained largely unchanged since the start of 2024 and hovers around PLN 80–90 billion. This is a further reason why we remain cautious, for the time being, about raising our investment forecasts for this year in response to data from the non-financial corporate sector. The Central Statistical Office (GUS) also reported that the value of investment projects commenced in the first half of the year fell by 20 per cent year-on-year. Taking into account the usual time lags, this suggests a slowdown in investment at the turn of 2026 and 2027, in line with expectations that part of the investment impulse will fade.
• PL-LABOUR MARKET: Last week Central Statistical Office (GUS) published its Statistical Bulletin, along with a set of new data for July. We learnt, amongst other things, that the registered unemployment rate fell from 5.9 per cent to 5.8 per cent, in line with seasonal patterns and our forecast. It was also reported that the BAEL unemployment rate rose from 2.8 per cent in the second quarter of last year to 3.2 per cent in the second quarter of 2026, suggesting some easing in the labour market.
• PL-MoF: Last week Treasury bill auction was a success for the Ministry of Finance; bonds worth PLN 12 billion were sold, with demand exceeding PLN 19 billion. Following the auction, 75 per cent of the government’s borrowing requirements were met.
• PL-INVESTMENT: According to a statement from the government, the value of contracts signed and funded from the Recovery and Resilience Facility (RRF, pol. KPO) amounts to PLN 234.4 bn, which is almost 98 per cent of the funds allocated to Poland.
• PL-MoF: The Ministry of Finance has announced that the so-called robotisation relief will be extended by 10 years. At the same time, the Ministry plans to abolish the so-called internet relief. Both allowances have been applicable to the PIT taxpayers. The robotisation allowance entitled businesses to an additional deduction from their tax base of 50 per cent of the costs of purchasing or leasing industrial robots; the internet allowance, on the other hand, enabled taxpayers (not just businesses) to deduct the actual costs of internet usage, up to PLN 760 per year, from their PIT assessment base.
• PL-LOANS: According to the AMRON-SARFiN report, in Q2 2026 the banking sector sold mortgage loans worth PLN 39.7 billion (+19% q/q, +62% y/y), which was a historic record for new sales. At the same time, over a quarter of sales involved the refinancing of existing liabilities
• PL-BUDGET: The government has adopted the draft state budget for 2027, which forecasts a general government deficit of 7.1 per cent of GDP. We present an in-depth analysis of the draft budget later in today’s report.
• PL-BGK-DEBT:Debt issues for the COVID-19 Fund in 2027 will amount to up to PLN 10 billion, according to the fund’s financial plan.
• PL-CPI: Flash figure of the August CPI inflation jumped to 3.4% y/y from 3.0% y/y in July. Acceleration was primarily due to the fuel prices. Arguably, Poland’s Statistical Office (Statistics Poland, GUS) must have collected its price surveys in the first half of the month, thus filtering out the impact of the government’s cap on fuel prices. We have written more on the CPI figures here.
• PL-GDP: Real GDP growth estimates for 2Q26 have been revised by 0.1 p.p. upwards to 3.9% y/y. The surprise came from a stronger-than-expected net exports contribution (+0.5 p.p.); furthermore, it is worth noting that despite some worries growth in inventories added only just 0.1 p.p. to the GDP figure.

Deficit: higher for longer. On the draft of the 2027 Budget Bill

On Friday, the draft state budget for 2027 was unveiled. It came as a slight negative surprise, as the Ministry of Finance not only revised this year’s projected general government deficit from 6.8 per cent to 7.1 per cent of GDP (blaming this on the costs of the CPN programme, i.e. capping fuel prices), but also assumed that this level would be maintained in 2027. This means that there will be no fiscal consolidation in Poland, not even a cosmetic one. We did not have high expectations in this regard, but we assumed that the pressure of high debt servicing costs would force the government to make some savings on the expenditure side of the budget. We regarded, and continue to regard, a tax rise in Poland as unlikely. Although the spending cuts failed to materialise, this cannot be regarded as a major surprise. Poland has reached a plateau of high deficits and will remain there for longer than we had previously anticipated – even until the end of the decade, if a deficit exceeding 5 per cent of GDP shall be considered a plateau.

Source: Macrobond, Pekao Research

Not all the latest fiscal news is negative. On Friday, the Ministry of Finance acknowledged that the state budget’s net borrowing needs for 2026 will be over PLN 100 bn lower than previously estimated (PLN 320 bn, not PLN 422 bn). A year ago, this had been a major talking point on the domestic debt market. Net borrowing needs were set to surge by as much as PLN 123 bn due to the launch of the loan component of the Recovery and Resilience Facility (RRF, pol. KPO). From the outset, this did not seem likely to us and we shared our scepticism in our daily report, but there was considerable commotion in the media and on the market. Last week, however, we received definitive confirmation that we were right. Borrowing requirements in 2026 are unlikely to change compared with last year, and next year they will most likely fall (although the Ministry of Finance had assumed they would remain at the current level). This should bring some relief to the domestic debt market.

State budget net borrowing needs planned vs actual

Source: MoF, Pekao Research

Finally, we would like to note that next year, BGK- and PFR-issued bonds, dating back to the pandemic and with a total value of 31 billion zlotys, will mature. These securities will most likely be redeemed by the Ministry of Finance, and this amount will be included in the deficit figures: PLN 282 bn. Similar payments, on a similar scale, took place in 2025, but not in 2026. This means that if one were to compare this year’s deficit with next year’s on a comparable basis, one would need to subtract the aforementioned PLN 31 bn from next year’s deficit; thus, instead of PLN 282 bn, we would arrive at PLN 251 bn – PLN 20 bn less than planned for this year.

If we were to calculate these same figures as a percentage of GDP, we would see a fairly substantial fall from 6.4 per cent to 5.4 per cent of GDP. This stands in contrast to the Ministry of Finance’s forecast mentioned at the beginning of the article, according to which the general government deficit is expected to remain unchanged at 7.1 per cent of GDP. Where does this discrepancy come from? Well, the general government deficit calculated as a percentage of GDP includes not only the central government budget but also extra-budgetary funds and local government funds. Furthermore, it is calculated using a slightly different accounting method (on an accrual basis in accordance with the EU’s ESA 2010 standard, rather than on a cash basis). The Ministry of Finance attributes next year’s high deficit, calculated using this method, to large-scale deliveries of military equipment scheduled for 2027. These purchases are, in turn, largely financed from the extra-budgetary Armed Forces Support Fund.

Does this change anything in terms of the assessment of the country’s fiscal situation? No – Poland will most likely have the highest deficit in the European Union and the fastest-growing public debt. Given this trend, it will be impossible to stabilise the debt solely by ‘growing out of it’ – that is, by maintaining high nominal economic growth. As early as next year, it may exceed the nominal interest rate on Polish government bonds. This will create the risk of a downgrade of our country’s credit rating in the future and keep debt yields high.

Financial Markets Update

Friday began with currency selling (buying of the zloty), but the market players behind this move ran out of steam rather quickly. Hawkish signals from the Fed reinforced this effect, and the EUR/PLN exchange rate stood just above 4.34 in the afternoon. This currency pair still has room to rise (by around 1 grosz to the nearest resistance level). It is worth bearing in mind, however, that for the EUR-PLN, if it does not rise, it must fall. If the bulls do not have momentum on their side, the EUR/PLN will not remain at these levels for long. The global trends mentioned earlier are extremely unfavourable for domestic bonds – on Friday, yields on Polish 10-year bonds rose by around 6 basis points to 6 per cent, and there is a good chance that there are further increases. We are, in fact, approaching key resistance levels (6 per cent for the 10-year bond, 5 per cent for the 10-year swap), albeit mainly at the long end. Last week was exceptional (it is unclear whether this heralds a longer-term shift in the fixed-income market) in that the bond yield curve steepened whilst the swap curve flattened slightly – until mid-week, both had been steepening at a similar pace. 

Over the coming days, the markets’ attention will be focused on developments abroad. Next week, the Monetary Policy Council (RPP) returns from its summer break. There will be no interest rate cuts for the time being.