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The economy will grow by 3.2% this year and 2.7% in 2026, supported by falling inflation, lower interest rates and rising public investment. Accelerating fiscal consolidation and the impact of unfolding global uncertainties will weaken activity, but EU funds will continue to boost investment. Inflation will rise to 4.1% this year as electricity price caps are phased out, before declining to 2.6% in 2026. A sharper global slowdown in trade and an increase in geopolitical tensions could lead to lower growth, while more persistent wage growth than anticipated poses an upside risk to inflation.

With underlying price pressures easing, monetary policy can become less restrictive. Given the large fiscal deficit, a gradual and sustained fiscal policy tightening is needed to rebuild fiscal buffers. Improving and expanding adult education and raising the minimum pension age could help to alleviate labour shortages and strengthen growth.

The Polish economy grew by 2.9% last year, underpinned by rising public spending and recovering private consumption. The labour market remains strong, with low unemployment and solid, yet easing, wage growth. Inflation has been affected by the reintroduction of VAT on food and the partial lifting of the freeze on energy prices. Headline inflation was 4.3% in April, still above the central bank’s target, and core inflation was 3.4%. Recent high-frequency indicators and the GDP flash estimate point to a continued recovery at the beginning of the year.

Weak demand in the euro area has led to subdued trade growth, with net trade acting as a drag on activity for most of last year. Total exports to the United States accounted for less than 3% of Polish GDP and the same share of employment in 2023. However, the impact of any US tariff restrictions on the EU is likely to weaken demand in export markets and further increase business uncertainty.

In a first cut since late 2023, the central bank lowered the interest rate in May to 5.25%. Excise tax increases this year and again in 2026, together with the planned lifting of the electricity price cap in September, will put upward pressure on prices, but inflation is expected to return to target in the second half of 2025. Monetary policy is assumed to ease further gradually this year and next, with policy rates moving towards 4% by the end of 2026, as inflationary pressures subside. Planned multi-annual fiscal consolidation will weigh on growth, with higher income tax revenues due to ‘bracket creep’ and a nominal freeze of some family benefits. It will need to accommodate increased defence spending, which is set to rise from the current 4.7% to 5% of GDP next year. Overall, the fiscal stance is expected to tighten by 0.6% of GDP in 2025-26.

GDP growth will strengthen to 3.2% this year, supported by falling inflation, lower interest rates and rising public investment. Private consumption will remain solid, supported by real wage growth and falling interest rates. Next year, the accelerating pace of fiscal consolidation and the impact of a weaker global environment will contribute to the slowdown, with GDP growth moderating to 2.7%. Nevertheless, public investment should remain strong, supported by the continued payout of EU funds. Annual inflation will peak at 4.1% this year, in part due to tax and regulated price increases. In 2026, the annual inflation rate will ease to 2.6%. The unemployment rate will remain low, reaching 2.8% this year and 2.7% in 2026. A sharper global slowdown in trade and an increase in geopolitical tensions could lead to lower growth, while more persistent wage growth poses an upside risk to inflation.

The acceleration of the planned fiscal consolidation will allow for further monetary policy easing. An ambitious pace of fiscal adjustment is planned for 2026 and beyond, although borrowing will remain higher due to increases in defence spending. To support consolidation, property and environmental taxes should be increased. A full phase-out of energy support would provide households adequate price signals helping the net zero transition, as much of the energy still comes from coal. Public investment has been spared from the consolidation effort, which is welcome. Building a single pipeline of ready projects should be considered, as well as centralised annual monitoring of all major projects including those of state?owned enterprises. Improving and expanding uptake of adult education and raising the pension age could help address skill and labour shortages.