Poland: Inflation at target gives more room to the NBP

Poland continues with its impressive economic growth with Q3 figure at 3.8%, prompting an upward revision of our 2025 forecast to 3.5%. The robust performance this year is attributed to strong private consumption, government spending and an improving external balance, with expectations that growth will remain above potential through 2026 before moderating in 2027. In Q3, public consumption, investments and trade have been the key drivers, while private consumption slightly disappointed and inventories were a drag. Investment is set to benefit from EU funds, and exports have outperformed expectations, signaling a positive trend for external demand.

Inflation has surprised on the downside, with November’s flash estimate at 2.4% and forecasts suggesting moderate price growth into 2026 and 2027. The Monetary Policy Council responded by cutting rates, with further easing expected if inflation remains subdued. Even after rate cuts, the Monetary Conditions Index remains restrictive due to an overvalued real exchange rate, which could justify further rate reductions. Despite negative fiscal developments and credit rating downgrades, Polish bonds have remained resilient, supported by dovish monetary policy. The FX market has seen stability in the EUR/PLN rate, with the zloty expected to gradually depreciate as interest rate differentials narrow.

Poland’s fiscal situation remains challenging, with the deficit projected at 7% of GDP in 2025 and 6.8% in 2026, driven by record defense spending, social transfers, and rising debt servicing costs. The government aims to enhance revenues through targeted tax increases rather than cutting social programs, leaving the budget reliant on nominal GDP growth. Politically, the landscape has stabilized post-election, with the President and government finding some limited common ground, while polling data showing shifts among major parties. The latest Eurostat SDG report highlights Poland’s progress on most sustainable development goals, especially in social areas, though environmental challenges persist.

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