Impressive growth and large deficits to continue

Expected development in a nutshell

Poland's economic outlook is positive, with growth outperforming the majority ofEU economies. The country's GDP grew by 3.4% y/y in the second quarter of 2025, driven predominantly by robust domestic consumption. Looking ahead, growth may accelerate further in the coming quarters, supported by resilient household spending and a pickup of fixed investment activity. In 2026, the pace of expansion is expected to remain broadly stable, with investment activity funded by the last disbursements of the Recovery and Resilience Facility. Inflation has been moderating, with the headline figure at 2.8% in August. The inflation trajectory is expected to remain at around 3%, with upward pressure coming from services and some relief from the prices of goods. The National Bank of Poland implemented monetary easing in the magnitude of 1 percentage point this year, with the last 25 basis points cut delivered in September. Further rate cuts are possible, with the terminal rate expected to be around 3.75% at the end of the next year. The foreign exchange market has remained stable, with the EUR/PLN exchange rate fluctuating within a narrow range. Our baseline forecast sees continued exchange rate stability through year-end, followed by a slight depreciation in the following year due to a mixture of political uncertainty and monetary easing.

On the fiscal front, Poland's deficit is projected to remain elevated, with the Ministry of Finance increasing the deficit forecast to 6.9% of GDP for 2025. The bond market reacted moderately to the 2026 draft budget, which projects 6.5% deficit next year, with the 10-year yield settling around 5.4%. Financing needs for 2026 are significantly higher, but they are inflated by the RRF loan drawdown and a decrease of financing needs for this year. Nonetheless, we have raised our 10-year yield forecast path by about 20 basis points due to the fiscal pressures. Political frictions between the government and the newly elected president limits the scope for fiscal consolidation due to possible obstruction of key legislation. Brisk growth of debt has been mentioned by Fitch as one of the reasons for change of the outlook to negative, as the debt-to-GDP ratio is projected to rise sharply, from 52% in 2024 to near or above 70% by 2027.

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