Economic news

• RATING: Last Friday Moody’s became the second major agency to maintain Poland’s rating and cut the outlook to negative. The agency cited the deterioration in fiscal indicators relative to prior assumptions. It is also concerned about the impact on the political gridlock on fiscal consolidation and possible pre-election surge in government spending in 2027.
• INFLATION: Statistics Poland revised August inflation upwards, from 2.8 to 2.9% yoy. The source of the surprise lies in core inflation, which declined from 3.3 to 3.2% yoy (as confirmed by the NBP’s official releases). Nevertheless, core inflation remains in a gentle downtrend, despite the outsized contribution from services prices. We expect core CPI to decline to ca. 3% yoy by the end of the year. A more detailed take on latest inflation developments in Poland can be found in our comment on the flash release.
• INTEREST RATES: Ludwik Kotecki saw a 50:50 chance of another rate cut in October. Regardless of the timing, this would be this year’s last cut. Kotecki also said that the MPC would pay attention to core inflation and wage growth. Since both of these figures have come out on the dovish side, chances of an October cut have presumably risen since Kotecki’s public statement.
• LABOR MARKET: Latest labor market data were a mixed bag. While employment declined by 0.8% yoy, in line with market consensus and figures for the previous months, wage growth tumbled relative to expectations. Instead of accelerating from 7.6 to 8.0% yoy, it decelerated to 7.1% yoy. Real wage growth remained elevated, but nominal wage growth is returning to normal levels faster than anticipated. So far, this is the best argument in favor of another rate cut that the MPC got this month. A more detailed comment on the data can be found here.
• INDUSTRY: Industrial output rose by 0.7% yoy in August, close to market consensus and our forecasts. A peek inside shows that automotive output decelerated last month, while other transport equipment continues to outperform. The print is entirely consistent with recent trends and suggests a very slow recovery in the sector. However, there was one huge surprise in August data. Construction output dropped by 6.9% yoy, significantly below expectations. Our comment on the data can be found on our website.
• RETAIL TRADE: Retail sales decelerated from 4.8% yoy in July to 3.1% yoy in August, matching expectations. The print was broadly in line with expectations and contains no major surprises. Retail sales slowed down due to two factors: calendar (lower number of working days) and cold spell (lowering the  seasonal sales of food and beverages). Durables sales remained strong. A more detailed comment on the data will be sent later.
• SENTIMENT: Consumer confidence rose to a new cycle high in August, latest data showed, underscoring the importance of household consumption for economic growth this year. See the next section for a more comprehensive take on these figures.
• BUDGET: State budget deficyt rose by more than PLN 15 bn in August, reaching PLN 172 bn in the first 8 months of the year. On a 12-month rolling basis the Ministry has already hit this year’s target and that implies no room to increase the deficit in the remaining half of the year relative to last year’s figures. To avoid amending this year’s budget, the MoF will have to look for savings in the order of PLN 30 bn to match the observed shortfall in tax revenues.

Polish consumers are feeling more optimistic

Last week, StatOffice published the monthly results of the consumer sentiment survey. The overall tone is positive – the current sentiment index reached -8.3 points, making it the highest since 2020. Meanwhile, the leading index, which stood at -4.3 points in September, fell just 0.5 points short of matching that same record. In a way, it feels like déjà vu, as we used almost the exact same words to comment on the June survey results. However, the reasons behind the improvement in consumer sentiment this September are quite different from those observed in June.

Let’s go back three months for a moment. June saw one of the strongest rebounds in consumer sentiment indicators in recent years, but it turned out to be short-lived – in July, the index fell back into double-digit negative territory. In our view, that sudden improvement in consumer sentiment was driven by the presidential election effect, which—when the opposition candidate is expected to win—typically has a strongly positive impact on public mood. As a result, we believe that the September reading is based on somewhat more stable foundations.

Consumer confidence in Poland, pts

Source: StatOffice, Pekao Research

In which categories did consumer optimism improve? In fact, in nearly all of them. The most significant improvement was seen in the assessment of changes in household financial situations over the past year, as well as in the perception of the present moment as a good time to make major purchases. This comes as no surprise – wage growth remains high, hovering around 8%, and inflation is nearly insignificant. This combination boosts consumers' real incomes, allowing them to rebuild their savings cushion and spend again.

However, a good deal of caution still lingers among consumers. This is visible in the indicators related to future major purchases and expected changes in financial situations – the only components of the survey that actually worsened in September. Ongoing geopolitical uncertainty continues to make consumers wary, although the financial standing of households doesn’t necessarily justify such caution. As a result, there's been a noticeable increase in the perception of the ability to save money – both now and in the near future.

Share of consumers who:

Source: StatOffice, Pekao Research

At the same time, Polish consumers’ assessment of the overall economic situation is improving. First, inflation expectations continue to decline and are now at their lowest level in over a year. Second, an increasing number of consumers expect unemployment to fall. And third, the share of respondents anticipating a deterioration in the country’s economic situation is the lowest since 2020.

Share of consumers who expect:

Source: StatOffice, Pekao Research

To sum up, although consumer sentiment has been volatile since the beginning of the year, it has been steadily improving. Consumers are recovering from two major shocks that occurred in quick succession, and what we’re currently witnessing is a gradual return of sentiment to pre-pandemic norms. At present, macroeconomic conditions clearly support the continued rebound in consumer demand, which is already evident in the hard data. Nothing is expected to change in this regard over the coming quarters, and 2025 is shaping up to be remembered as a year of consumption.

Financial Market Update

Last week was marked by a sell-off in domestic assets. The PLN weakened against both the euro (from 4.25 to 4.2650) and the dollar (from 3.60 to 3.63), while 10-year government bond yields rose by 4 bps (from 4.37% to 4.51%). This was not driven by macroeconomic data – in fact, slowing wage growth suggests more room for rate cuts – but rather by negative news regarding Poland’s fiscal outlook. It began with the publication of the draft budget for next year, followed by Fitch’s downgrade of Poland’s rating outlook. On Friday, another negative signal came from a second rating agency – this time Moody’s.

We believe this unfavorable environment for Polish assets will persist in the coming week. As such, we expect a continued gradual sell-off in POLGBs, though without significant investor outflows. The yields on Polish government bonds remain high enough to keep them attractive to foreign investors. EUR/PLN has reached the upper boundary of its medium-term trading range, and we do not expect a breakout. The renewed weakening trend in the US dollar should provide some support for the PLN.