Societe Generale notes that the Polish Zloty strengthened while domestic bonds sold off as August inflation and second-quarter Gross Domestic Product (GDP) exceeded expectations and the government presented its 2027 budget. The draft foresees a 7.1% of GDP deficit and a tax overhaul shifting burden toward corporates, raising concerns about ratings risks and borrowing costs despite recent supportive macro data for EUR/PLN and POLGB yields.

Zloty firms as fiscal deficit looms

“In Poland, the zloty strengthened and domestic bonds sold off yesterday after inflation and GDP both exceeded expectations and the government unveiled details of its 2027 budget.”

“Headline inflation accelerated to a 14-month high of 3.4% in August from 3.0% in July. Final 2Q GDP was revised up by 0.1pp to 1.0% qoq (3.9% yoy). The data lifted the 10y POLGB yield above 6.0% for the first time since January 2025.”

“EUR/PLN retreated below 4.33 from the verge of 4.35. The draft budget projects a fiscal deficit of 7.1% of GDP, broadly unchanged from the expected 2026 level. It also includes a tax overhaul aimed at easing the burden on middle-income households through higher corporate taxation, delivering on a key campaign promise ahead of next year’s elections.”

“PM Tusk had sought to keep the deficit below 7% but argued that doing so would come at the expense of economic growth. Rating agencies have previously warned that the absence of a credible fiscal consolidation plan could raise the risk of a downgrade and higher borrowing costs.”