CEE: Moody’s downgrades Poland to A3 as fiscal pressures rise

Erste Bank Research Team Erste Bank

On the radar

Moody’s downgraded Poland’s rating to A3 and changed the outlook to stable.
Today, Poland will release wage and employment growth.
Slovenia will release producer prices in August.

Economic developments

Moody’s has downgraded Poland’s sovereign rating by one notch, from A2 to A3, while changing the outlook from negative to stable. The decision reflects what the agency sees as a sustained weakening of Poland’s fiscal position, driven by persistently high deficits, rising public debt and increasing debt-servicing costs. The downgrade puts the spotlight firmly on public finances. Moody’s expects the general government deficit to remain at around 7% of GDP in both 2026 and 2027, despite strong economic growth, while government debt is projected to rise from 59.7% of GDP in 2025 to 68.9% in 2027. The agency expects more meaningful consolidation only after the 2027 parliamentary election. Putting the Moody’s decision into perspective. Moody’s had previously rated Poland one notch higher than the other two major rating agencies. At A3, its assessment is now broadly aligned with the A- ratings assigned by S&P and Fitch. While Fitch Ratings changed the outlook to negative, S&P has sustained the stable outlook so far. S&P will be reviewing Poland at the beginning of November.

Market movements

EUR/PLN is close to 4.36 on Monday morning, EUR/CZK at 24.35 and EUR/HUF at 363. While the EUR/HUF has been moving mostly sideways, EUR/CZK and EUR/PLN has gone more visibly up recently. The CEE bond market performance was mixed last week. This week, Hungarian central bank holds a rate setting meeting and a pause in short monetary easing cycle is expected as geopolitical tensions remain high and commodity prices have been elevated (Brent oil price remains above USD 100 per barrel). As for other local news, In Romania the political deadlock persists as Manda, the secretary general of the PSD said that he does not want the party to support the Prime Minister-designate Muresan (proposed by President Nicușor Dan). Lack of functioning government affects Romania’s ability to narrow the budget deficit further and present a credible fiscal plan that will be key for the assessment of its creditworthiness in the near term.

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Erste Bank Research Team

Erste Bank

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