Poland: Regaining speed in turbulent times

Despite the challenging global environment, the Polish economy managed to re-accelerate to almost 4% y/y in 2Q26. Fixed investment growth has picked up significantly, as expected, with the help of the RRF funds, while private consumption has slowed a bit, but remained solid. The net exports’ contribution to GDP also turned positive, thanks to an export revival. The cyclical upswing observed in Germany, the continuing revival in credit growth, plus signals that a greater part of the RRF-funded investment will be continued after 3Q26, all bode well for economic activity in the coming quarters. If it were not for rising commodity prices and global uncertainty, we would be thinking about raising our GDP forecasts. Yet, our baseline scenario still assumes that 2Q26 has seen a local peak in GDP growth and will be followed by a gradual slowdown. The relief in energy commodity markets proved only short-lived. The re-escalation of military tension in the Middle East is pushing prices of crude oil and natural gas to new highs, while the global reserves are going down and the filling levels of the gas storage facilities in Europe are at multi-year lows (for this time of the year). We keep assuming that the Brent price will start falling soon, in line with the forward curve. But even with this assumption in mind, all things considered (rising global costs of freight, likely pickup in food prices, global rise in production costs), we see the inflation outlook deteriorating again. Our current forecast shows that CPI growth could reach 4% by October and stay there until spring 2027. Stronger and more persistent commodity shock could obviously push inflation even higher and for longer.

The Monetary Policy Council (MPC) is able to tolerate an episode of inflation slightly above its tolerance band around the 2.5% target as long as it is not too big and not too long. Our baseline scenario still assumes the stability of NBP rates in 2026-27, as we believe that commodity prices will start reversing their upward trend soon. An interest rate change in October seems highly unlikely, in our view, as the central bank will be waiting for the November projection. What happens afterwards will be conditional on the inflation behavior/outlook. The risk of monetary tightening has definitely increased, and it may materialize if the commodity shock proves more persistent and inflation shoots well above 4%.

As for fiscal policy, even though expectations regarding consolidation were not particularly high, the draft budget for 2027 managed to disappoint again, showing the deficit stuck at 7.1% of GDP and public debt heading towards the safety threshold of 55% of GDP. We think that the deteriorating fiscal trajectory is increasing the risk of a sovereign rating downgrade within the next year. The poor fiscal position makes Poland vulnerable to external shocks. The surge in local bond yields in the last three months was already stronger than among peers, and if the global bond rout intensifies, our market may be more exposed than others to a further sell-off. We still think, however, that the baseline scenario is for a gradual strengthening of bonds, once commodity prices start normalizing.

The rising global uncertainty, combined with rate expectations (with the NBP perceived as less likely to hike than the ECB and Fed), rising fiscal worries and the balance of payments deterioration pushed the EURPLN above 4.30 and we no longer expect a return to 4.25 anytime soon.

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