Markets catch their breath: an economic roundup of the month

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

At the beginning of each month, we analyze the condition of the Polish economy, focusing on the main macroeconomic indicators and the behavior of financial markets. The real-economy data cover March 2026, while the financial-market observations relate to April 2026.

Real economy: inflation on the rise

March’s macroeconomic data describe a reality already reshaped by a sharp geopolitical turn. The escalation of the conflict in the Middle East – including the US and Israeli strike on Iran and the blockade of the Strait of Hormuz – triggered a surge in oil and gas prices, altering the benchmark for assessing the current economic situation.

Even sudden geopolitical shifts take time to feed through into the real economy. The indicator that reacted fastest to developments in the Middle East was, unsurprisingly, inflation. In March, it rose to 3% year on year, up from 2.1% in February. The latest figures, for April, point to a further increase to 3.2%. Fuel prices in March were as much as 15.4% higher than in February. Compared with a year earlier, the increase reached 8.5%.

On March 31st the government introduced the Lower Fuel Prices Program (CPN). The package includes a reduction in VAT on fuel from 23% to 8%, alongside cuts to excise duties. A maximum fuel price was also introduced. Even so, fuel prices in April rose by 8.4% year on year, meaning the pace of increase remained broadly similar to March’s. April’s higher inflation was most likely driven by rising core inflation. In other words, some firms have already begun passing on higher costs through price increases, while elevated oil prices are starting to spill over into other parts of the economy.

According to estimates from the Ministry of Finance, the CPN package costs PLN 1.6bn (EUR 370m) per month. The program has, for now, been extended until May 15th. Yet there is still no end in sight to the conflict in the Middle East, making a further extension likely. That would create additional problems and further complicate the state of the public finances. A prolonged CPN program could mean that the planned windfall-profits tax will no longer offset its costs. And the government has little room for manoeuvre.

Real economy: retail sales surge

The conflict in the Middle East also showed up in retail-sales data. Measured at constant prices, retail sales rose by 8.7% year on year in March. That was the strongest reading since April 2022 and markedly better than February’s 5% annual increase. Fuel sales jumped by as much as 16.6% year on year, as drivers rushed to fill up in anticipation of higher gasoline prices at the pump.

A number of one-off factors also played a role: a low base effect from March 2025, a significant change in weather conditions between February and March that boosted clothing and footwear sales (up 13.6% year on year), as well as the different timing of Easter.

Such strong retail-sales growth is, of course, encouraging. But it may well prove to be the strongest reading of the year. The longer elevated inflation persists, the greater the risk that it will weigh on consumers’ willingness to spend.

Real economy: industry rebounds, construction remains sluggish

March brought a turnaround in the weak performance of Polish industry. After seasonal adjustment, industrial output rose by as much as 8.8% year on year – the strongest increase since 2022. By comparison, growth in February stood at 1.7%.

Industry was making up for losses following a cold winter that had constrained production. It is also possible that the war in Iran contributed to stronger demand. Companies may have feared that higher energy prices would feed through into broader price increases, prompting them to build inventories quickly.

But, as with retail sales, March’s strong performance is unlikely to translate into equally impressive growth rates in the coming months. One reason may be weaker external demand as the conflict in the Middle East drags on. Germany’s finance ministry has already revised its real GDP growth forecast for this year down to 0.5%.

Activity in construction was far less spectacular than in industry. After seasonal adjustment, construction-and-assembly output fell by 2.1% year on year in March. Despite the decline, this was still a clear improvement on February, when output contracted by 12.4%. Better weather conditions were the key factor behind the rebound.

Construction, however, should feel the effects of the Middle East conflict less acutely than retail sales or industrial production. The reason lies in the large number of planned infrastructure projects still financed under Poland’s National Recovery Plan. That should make this branch of the economy somewhat less dependent on the global business cycle.

Wages in the corporate sector rose by 6.6% year on year in March, slightly above February’s 6.1%. This appears to be only a temporary interruption in the broader slowdown in wage growth.

Financial markets: recovering from the shock

April on financial markets was marked by an unwinding of the sharp reaction seen in March after the US and Israeli strike on Iran. What had fallen in March rose in April – and vice versa. The euro weakened against the zloty by 0.8%, while the dollar fell by nearly 2.3%. Even so, both major currencies remain slightly stronger against the zloty than they were in February.

Losses recorded in March were almost fully recouped on the Warsaw Stock Exchange. The broad WIG index gained 4.9% in April, while the mid-cap mWIG40 rose by 5.6%. As a result, both indices moved above their levels from the end of February. The small-cap sWIG80 remains below that threshold, although it too advanced in April, rising by 3.7%.

Movements in the Polish bond market were far more limited. Yields on 10-year Polish government bonds rose by nearly one percentage point in March, climbing from 4.95% to 5.9%. In April they fell by just 0.14 percentage points, leaving yields at a still markedly elevated level compared with the end of February.

As expected, the Monetary Policy Council (RPP) left interest rates unchanged in April.

The fiscal question

One of the most significant developments last month concerned Poland’s 2025 deficit figures and the government’s projections for 2026, presented as part of the so-called fiscal notification process. Twice a year, EU member states report their fiscal-policy data to Brussels.

According to Statistics Poland (GUS), the general government deficit – covering both central and local government institutions – reached 7.3% of GDP in 2025. That was, once again, higher than the Ministry of Finance had forecast in the budget act, where it projected a deficit of 6.9% of GDP.

Only once in the past 30 years has Poland recorded a higher deficit – and only marginally so. In 2010 the deficit stood at 7.4% of GDP, just 0.1 percentage points higher. At the time, however, the country was grappling with the fallout from the worst financial crisis of the 21st century.

The government expects the deficit to reach 6.8% of GDP this year, which would make it the highest in the European Union. Public debt is projected to rise to 65% of GDP.

After the sharp market reaction in March, April brought a phase of recovery. The zloty strengthened against the major currencies, although it did not fully recoup its earlier losses. The Warsaw Stock Exchange staged a clear rebound, with the main indices rising back above their pre-escalation levels. The bond market behaved differently: after March’s sharp jump, yields declined only marginally, signaling that financing costs remain elevated and investors cautious.
The condition of the economy in March remained relatively solid. There was a clear rebound in both retail sales and industrial production, with both categories recording their strongest growth rates since 2022. Construction, meanwhile, continued to contract, although the declines were smaller than before. The labor market remained stable and wage growth moderate. At the same time, inflationary pressure is building, suggesting that the strong performance in some sectors may prove temporary.
The conflict is affecting the economy primarily through the energy-price channel. The surge in oil and gas prices pushed inflation higher – especially through fuel prices – and has also begun feeding into core inflation. It is influencing the behavior of both consumers and businesses. Consumers increased fuel purchases in anticipation of further price rises, boosting retail sales, while companies may have accelerated production and inventory-building out of concern over rising costs. At the same time, the longer the conflict persists, the greater the risk of weakening external demand and slower economic activity in the months ahead.