Growth holds firm as inflation rears its head. A month in review

This article is a part of Poland Unpacked. Weekly intelligence for decision-makers

Poland continues to grow at a solid pace, supported by investment, consumption and industry. At the same time, however, inflation is once again becoming a concern.

At the beginning of each month, we take stock of the Polish economy, focusing on the main macroeconomic indicators and developments in financial markets. The real-economy data cover July 2026, while the financial-market observations refer to August 2026.

Let us begin with the preliminary estimate of GDP growth in the second quarter of 2026, released at the end of August. According to Statistics Poland (GUS), the Polish economy expanded by 3.9% year on year, up from 3.5% in the first quarter.

All major areas of the economy contributed to the expansion. Particularly noteworthy was the rebound in investment, which surged by 8.4% year on year in the second quarter. Household consumption rose by 2.8%, while so-called public consumption – that is, spending by the public sector – increased by 1.7%.

Net exports – exports minus imports – also made a positive contribution to GDP. This is worth noting because in previous quarters their contribution had been either negative or neutral. In other words, Poland had been importing more than it was exporting. That trend has now reversed.

It is also worth noting that this was the ninth consecutive quarter in which Poland’s economy grew by at least 3% year on year.

Real economy: strong consumers and industry

Monthly data for July show that the economy remains in very good shape. Retail sales rose by 3.9% year on year. Demand was strongest for durable goods – cars, auto parts and home furnishings – as well as medicines, cosmetics and orthopedic equipment.

Consumer-sentiment surveys point to cautious optimism. On the one hand, consumers say that now is a good time to make major purchases. On the other, they also report an improved ability to save. And it is saving, rather than increased spending, that remains their priority for the near future.

Consumer optimism is underpinned by solid wage growth across the economy. In July, wages in the corporate sector rose by 6.8% year on year, or 3.8% after adjusting for inflation. This means that retail sales are growing broadly in line with real wages.

Strong industry, weak construction

The strength of the economy is also visible in industry. Industrial production rose by 4.2% year on year in July on a seasonally adjusted basis, while manufacturing output increased by 4.4%. Domestic consumption appears to be a major driver, although exports have also been picking up in recent months.

The three-month growth rate of exports, measured in euro terms, reached 8.1% year on year. It remains to be seen whether this is a one-off jump or the beginning of a more sustained recovery in foreign demand for Polish goods. Recent data from the euro area, Poland’s main trading partner, have been weak and point toward the former scenario. But Polish exports have surprised on the upside more than once.

Construction is currently the only sector of the economy performing poorly. Construction and assembly output fell by 2.4% in July, or by 2.2% year on year after adjusting for seasonal fluctuations. That is a weak result, given both expectations of an acceleration in the sector and the low base from July last year.

The reasons? Above all, it appears to reflect the very lengthy processes involved in infrastructure investment. Poland is moving from relatively straightforward projects such as roads or small public buildings to highly advanced and complex undertakings, led by the nuclear power plant and the Central Communication Port (CPK). This lengthens the period between an investment decision and the proverbial breaking of ground. Eventually, however, construction activity should improve.

Inflation rears its head

We also recently received the flash estimate for August inflation, which came in at 3.4% year on year. The final reading may, however, be slightly lower because of the temporary return of the CPN (“Lower Fuel Prices”) program in the second half of August.

Inflation is likely to rise in the coming months because oil prices remain high and gas prices are increasing. Unless the United States and Iran reach a lasting agreement that results in the Strait of Hormuz remaining open, higher inflation should be expected over the months ahead. It may even exceed 4%. That effectively rules out any discussion of interest-rate cuts this year.

Looking ahead: the 2027 state budget proposal

At the end of August, the government approved the draft budget bill. It contains no major changes on either the spending or revenue side. The exception is the government’s proposed tax reform, which would, among other things, raise the income threshold for the first personal income tax (PIT) bracket from PLN 120,000 to PLN 130,000, introduce a new second bracket, lower the revenue ceiling for taxpayers using the lump-sum tax regime, and increase both the solidarity levy and corporate income tax (CIT) for the largest companies.

From the perspective of the economy as a whole, the key figure is the planned general-government deficit, which is set at 7.1% of GDP. This would be the third consecutive year in which it exceeds 7%. The government has therefore opted to maintain a highly expansionary fiscal policy. This will certainly continue to support strong economic activity.

On the other hand, Poland is on a path of rapidly rising public debt relative to GDP, and in the coming years fiscal consolidation – that is, reducing the size of the deficit – will become necessary. The current government is leaving that problem to its successor.

Financial markets: the rally continues, bond yields rise

Unlike the real economy, where there was plenty of activity, financial markets saw little significant change in August compared with July. The Polish zloty remained stable against both the euro and the U.S. dollar, while the main indices on the Warsaw Stock Exchange rose by 2–4% from July.

Meanwhile, yields on 10-year Polish government bonds rose by another 0.3 percentage points, breaking above 6%. The increase is part of a global trend of rising sovereign-bond yields amid concerns about higher inflation and rapidly increasing public debt in many countries. The rise in Polish yields can also probably be linked to the government’s plans to maintain a high fiscal deficit.

Poland’s economy has accelerated, with the recovery in the real economy remaining broad-based. GDP growth reached 3.9% in the second quarter, supported by a strong rebound in investment, while consumption and industry also performed well in July. Construction, however, remains the weak spot.
Strong economic activity is increasingly being confronted by higher inflation and expansionary fiscal policy. Inflation rose to 3.4% in August, while the general-government deficit planned for 2027 stands at 7.1% of GDP. This means the economy continues to receive substantial fiscal support, but the problem of rising public debt is also becoming more pronounced.
The equity rally continues, but pressure is building in the bond market. The zloty remained stable, while the main Warsaw Stock Exchange indices gained 2–4% in August. At the same time, yields on 10-year government bonds rose by 0.3 percentage points to above 6%, reflecting concerns about inflation and persistently high fiscal deficits.