Poland Macro Outlook 2025: Into the uncharted territory

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• #0 Into the uncharted territory. Geopolitics is the key source of uncertainty for 2025, with its growing impact on the global economy — affecting world trade, inflation, and central bank policies. Against the backdrop of this global voyage into the unknown, Poland appears to be following a well-defined and relatively stable course toward lower inflation, stronger and more balanced economic growth, addressing structural weaknesses, and seizing strategic opportunities.
• #1 Have consumers lost their love for shopping? The weakness in consumption observed towards the end of 2024 is not justified by fundamentals in our view - strong growth in labour income and pensions has recently been sufficient to cover the cost of rising energy and food prices. In our view, rumours of the ‘death of the consumer’ are greatly exaggerated - we expect consumption dynamics to return to levels consistent with solid fundamentals in 2025.  However, changes in consumer habits, linked to the increasing affluence of society and changes in its demographic structure, are inevitable. In the medium term, demand for services is likely to continue to grow more strongly than for goods.
• #2 Accumulation of investment challenges with EU support. 2025 will bring a noticeable revival in investment activity, despite the persistently challenging economic environment and the continued caution of businesses. Poland simply cannot afford an investment stagnation, as it would only deepen the gap in the adoption of modern technologies, capital labour ratio, and energy sources. An investment boom means a rebound in construction (after a full year of declining activity), in sectors benefiting from infrastructure expansion and among producers of capital goods. In 2025, public sector investments will take the lead, with private investment picking up somewhat later—in the 2h25 and in 2026 — further supported by potential interest rate cuts.
• # 3 Germany – threat or opportunity? Germany has been in recession for two years. In 2024, the domestic industry, which had so far been relatively resilient to Germany's problems, faced a decline in demand from other eurozone countries, mainly in the automotive sector. Some industries (e.g., those related to consumer goods production) remained relatively resistant to the downturn in Germany, for example, by increasing exports outside the EU (e.g., to the USA and the UK). In 2025, an opportunity for exporters may lie in the expected recovery in the European real estate market. Despite the weakness of its main trading partner, in 2025, according to the OECD, Poland will be the leader in economic growth. The domestic potential is seen, among other areas, in increasing armament production and developing infrastructure (nuclear energy, CPK airport, railways).
• #4 Is Poland still competitive? Polish exporters are sailing into uncharted waters - the threat of US tariff war with the rest of the world and record-high uncertainty over global trade policy have joined the deglobalisation trends already observed. Recently, Poland's merchandise exports have grown at a slower rate than global trade, reflecting weakening demand from key export markets in the eurozone. Polish exporters are known for their flexibility and forecasts for their export markets are improving, so we look to the future with cautious optimism. A certain limitation of the potential  to export rebound is the decline in FDI inflows observed recently, but in our view this is temporary and the economy remains competitive. Despite strong growth in recent years, wages in Poland are still among the lowest in the EU. The expected decline in wage dynamics, combined with an increase in productivity and demand, will contribute to a marked decline in the dynamics of ULC, which should rebuild/strengthen Poland's competitive position, at least in EU.
• #5 Can employment in Poland still grow? In 2024, limited demand for labour contributed to a reduction in job positions, although, as in recent years, demographic trends were the primary factor determining employment dynamics. For this reason, the GDP growth acceleration we anticipate may lead to a only modest increase in employment in 2025, of approx. 0.2%. Due to demographic factors, labor supply forecasts remain unequivocally negative, and none of the realistic migration scenarios suggest that an influx of foreigners could solve the problems of an aging society.
• #6 The economic impact of Donald Trump’s return. The change of power in the USA will increase political uncertainty long after Donald Trump's inauguration. His program includes, among other things, the largest deportation operation in US history, high import tariffs, and the end of the war in Ukraine. Combined with tax cuts, this will result in an increase in the fiscal deficit and public debt, while also reducing GDP compared to the status quo, and increasing inflationary pressure and labour market strain. The introduction of high tariffs would also, mainly indirectly through Germany, worsen the situation for Polish exporters and producers.
• #7 Remedial procedure for public finances. In 2025, fiscal policy will focus on continuing the modernization of the armed forces and strengthening national security, as well as on infrastructure investments. This is taking place under the Excessive Deficit Procedure (EDP) launched by the European Commission, which requires compliance with EU standards. The Ministry of Finance is planning only a slight reduction in the deficit this year, postponing more substantial consolidation to subsequent years, counting on strong GDP growth to boost tax revenues and allow the country to grow out of its deficit and debt. We forecast that the deficit will drop to 5.6% of GDP in 2025, however, to keep debt below 60% GDP, the pace of consolidation should be faster.
• #8 Will monetary policy remain extremely restrictive? Based on recent comments from the central bank, this scenario cannot be entirely ruled out. However, in this report, we demonstrate that the scale of inflationary risks has diminished, and many concerns expressed by the MPC and cited as arguments for delaying rate cuts appear overstated. With inflation expected to return to the NBP target in 2h25 and a negative output gap anticipated in 2025 and 2026, we see room for a shift toward a neutral monetary policy. In our view, this would imply rate cuts totaling 100 basis points in both 2025 and 2026.
• #9 Is this the end of the strong zloty? In 2024, the zloty strengthened against the euro and weakened against the dollar and was the best performing currency in the CEE region. Key to the zloty's strength was restrictive monetary policy - the MPC stabilised rates while the Fed and ECB as well as regional banks were in a cycle of cuts. At the same time, the fundamentals related to external balance have been steadily deteriorating. Geopolitics will be an important source of uncertainty for the zloty's performance in 2025.
• #10 Stagnant housing market. 2025 will be a year of declining housing sales, less housing construction activity and price stabilisation. The stimulus for the demand side would primarily come from interest rate cuts. With high labour and energy costs, developers' margins will fall. In the long-term rental market, rates should hold with a possible increase in the offer. A ‘recession’ is possible in the short-term rental market - with negative pressure on prices, it is possible that some of the offer will be withdrawn towards long-term rental.