Macroeconomic overview, end-Q1 2025

The big picture for UK and foreign investors interested in Poland. Key macroeconomic indicators updated monthly.  [GUS = Główny Urząd Statistyczny – Statistics Poland]

Commentary

Poland’s economy did better than expected last year, with a preliminary estimate of GDP growth for the full year at 2.9%, up from the 2.8% consensus forecast. With one quarter completed, most forecasters are continuing to suggest that it will nudge upward to 3.0% or above. Inflation looks likely to peak at 5.0% in March before retreating steadily; borrowing costs have yet to start coming down. Wage inflation remains stubbornly high; recruitment and retention is a major issue for employers. On the positive side, manufacturing industry has just ended its longest run of negative PMI readings (35 months in a row under the neutral score of 50, returning into positive territory for the first time since April 2022). The EU’s sudden decision to massively boost spending on military production and infrastructure has raised manufacturers’ spirits, though consumer spending saw an unexpected reversal in February.

Unemployment (as of January) was the lowest in the EU (jointly with Czechia), though the mismatch between Eurostat’s economic inactivity-based data (2.6%) and the Polish government’s data based on registered unemployment (5.2% in February) suggests that the cash-in-hand economy is growing once again. Overall productivity continues to grow much faster than in the Eurozone.

Looking back at the past 20 years since Poland joined the EU, it is clear that Polish workers have done well over that time. Whilst inflation had doubled prices, wages have increased three-fold, representing an increase in spending power of over 50%. Contrast this situation with the UK, where real wages have not budged in 20 years.

Inflation is expected to peak around 5% in April, before weakening in H2 2025, once the base effect of the ending of the energy price cap works through. Core inflation has already started falling, so by the end of 2025, the central bank should be able to begin the cycle of lowering base rates (assuming no black-swan events).

The politically driven minimum wage is seen as problematic by manufacturers with large blue-collar workforces. From 1 January 2025, the statutory minimum wage rose by a further 8.5% from 4,300 zł a month gross to 4,666zł (from 1 July 2024), and up 10.0% from the 4,242zł it was on 1 January 2024, while inflation has risen by around 5%.

Although the Polish government, formed in autumn 2023, is seen as more business-friendly in its rhetoric, it is still difficult to point to specific improvements in the overall business environment – other than ending the stream of unpredictable and poorly considered legislation pumped out during the previous parliament. However, given the fact that the government is, in effect, a coalition of three coalitions, and that the president represents the parliamentary opposition, this state of affairs is to be expected. The presidential election takes place this May.

Questions facing investors in Poland centre on the future of Russian hostilities in Ukraine and the possibility of a Trump-brokered ceasefire. An end to the shooting war would signal a major reconstruction boom in Ukraine, with Poland a natural logistics platform and partner for that process. Another area of uncertainty is the state of Western Europe’s – specifically Germany’s – economic prospects, as Poland’s manufacturing depends heavily on those markets. Trade in goods for the first half of 2024 show Poland with a tiny surplus of €4.6 billion; the value of goods exported falling faster than that of imports. In 2024, the UK was Poland’s only Top Four export market to have grown both in value (up by 5.5%) and in terms of its share in the overall structure of Polish exports of goods (up from 5.0% to 5.3%); this trend continued into January 2025.

Demographics and the labour market

Unemployment is likely to stay near record low levels; while firms are less likely to be recruiting this year, fewer young Poles will be entering the labour market. Wage pressure is likely to continue as retention of skilled employees continues to be a big worry for firms. Poland’s largest age cohort, born in 1983, reaches the age of 42 this year (around 700,000 people); compare this demographic high-water mark to the number of 22-year-olds, born in 2003 – a mere 350,000. The number of labour-market entrants will continue to fall (fewer than 300,000 Poles were born in 2024).

Poland’s unemployment is lowest in the cities and highest in rural areas. More than half of the long-term unemployed live in villages. Big disparities exist between cities where unemployment is extremely low (Katowice 1.2%, Poznań 1.2%, Warsaw 1.4%, Wrocław 1.8%, Kraków 2.2%, and Gdańsk 2.6%), and small provincial towns where it remains in double digits. Szydłowiec district, 120km south of Warsaw, also in Mazowsze province, holds the record for Poland at 23.5%. Nearby Radom, a city of 200,000 people, also has high unemployment at 9.8%. New investors might wish to consider university cities such as Łódź (4.8%), Rzeszów (4.1%), Lublin (4.4%) or Kielce (4.8%). All data from February 2025.

Unemployment has been rising since December in Kielce, (up by 0.4 percentage points), in Lublin, Łódź and Szczecin (up by 0.3 percentage points), in Kraków, Katowice and Poznań (up by 0.2 percentage points), in Wrocław, Gdańsk and Rzeszów (up by 0.1 percentage point). In Warsaw it remains stable.

The zloty

Although Poland notionally signed up to join the eurozone as part of its EU Accession Treaty, there was no mention of when, or at what rate. To do so, Poland must alter its constitution, which needs a two-thirds parliamentary majority. So Poland continues to linger on the fringes of the EU’s core – and – importantly for its manufactured exports – it can control the competitiveness of its currency. The Brexit referendum resulted in a dramatic fall in value of the pound against the zloty. From June to October 2016, the pound fell from 5.60zł to 4.80zł, a 14% drop. Since then, it has recovered; fluctuations result more from political turbulence than macroeconomic fundamentals. Over the past quarter, the zloty had strengthened against the pound, trading in the band 4.99zł and 5.05zł to the pound.

A weaker zloty makes Polish exports more competitive as well as boosting Poland’s attractiveness as a location for inbound foreign direct investment.

UK-Polish trade

On the surface, Brexit has not hampered trade between Poland and the UK, with 2024 witnessing yet another record in the value of goods and services traded between the two economies. However, UK exports to Poland now include significant sales of fossil fuels substituting those Poland used to buy from Russia. Polish export growth to the UK mainly comes from its larger exporters successfully replacing goods from Western European SMEs which no longer trade with the UK because of frictions arising due to the UK’s departure from the single European market and Customs Union. These have made it much harder for small business to trade profitably with a third country.

Links:

GUS (Statistics Poland) English-language pages
Central Bank of Poland English-language pages
Eurostat