The path of interest rate cuts in Poland is becoming clearer — a decline to 3.5% by 2026 is expected, forecasts Piotr Arak, chief economist at VeloBank, in the Economic Quarterly. Poland’s industrial sector is experiencing a very gradual recovery, consumption is increasing, but wage pressure on businesses is also rising. Global markets hope that the conflict in the Middle East will not destabilize the world economy.
The war in the Middle East is intensifying inflationary pressure, but markets expect the conflict will not affect the global economy. Although the U.S. carried out attacks on Iranian nuclear sites and Iran has threatened to close the strategic Strait of Hormuz—through which about 20% of the world’s oil and gas flows—financial markets remain surprisingly stable. S&P 500 futures are rising, oil prices hold near current levels, and natural gas and gold prices have slightly declined, suggesting investors still believe the conflict will be short-lived and do not fear a serious escalation, mainly due to Iran’s demonstrated weaknesses.
The Federal Reserve remains on hold. The Fed keeps interest rates steady at 4.25–4.50%. The U.S. economy remains solid — activity is growing, unemployment is low, and the labor market is strong. Inflation remains slightly elevated, and the Fed indicates that future decisions will depend on incoming data and risk assessments. Uncertainties related to trade, fiscal, and regulatory policies—such as tariff effects—may only become visible in data by summer. Inflation risks tied to the Middle East situation and rising oil prices make forecasting the Fed’s next moves difficult beyond a wait-and-see approach.
The path for interest rate cuts in Poland is becoming more defined — a drop to 3.5% by 2026 is expected. The Monetary Policy Council (RPP) continues cutting rates. After a 50 basis point cut in May, it reduced rates again by 25 basis points in early July, despite a still hawkish tone from Council members. Inflation is stabilizing near the target. Recent PMI data for the industrial sector, at 44.8 points and declining for the second consecutive month, may partly explain the RPP’s decision for faster rate cuts. Energy prices will remain frozen until year-end. For autumn, further cuts are forecast, potentially bringing the reference rate down to 4.50% by the end of the year, alongside two more cuts and a consumer price index (CPI) around 3% year-on-year.
Iran’s weakness is an opportunity for the U.S. and Israel. Iran’s economy faces severe challenges — years of sanctions, runaway inflation, and youth emigration have deepened instability. In 2024, Iran saw its largest wave of protests since the 2009 Green Movement. The government struggles to maintain control over ethnic provinces (Balochistan, Kurdistan), and tensions within the ruling elite have risen following assassinations by Israel. The conflict exposed serious gaps in Iran’s air defense system, extensive infiltration by Israeli intelligence, and limited capacity to respond symmetrically to attacks.
In industry, recovery remains very slow, while wages are rising too quickly. Industrial production rose 3.9% year-on-year in May, but a 2.0% month-on-month decline may indicate weakening momentum in the short term. Retail sales at constant prices increased 4.4% year-on-year, with especially strong growth in durable goods suggesting continued private consumption recovery. Average wages in enterprises rose 8.4% year-on-year, which, alongside sustained real household income growth, supports demand strength but also maintains cost pressures in the economy.
The zloty has gained relative stability but not strength — despite a global dollar depreciation, the PLN remained flat, indicating that domestic factors (such as the interest rate path and fiscal situation) remain dominant. The zloty is not strengthening significantly, despite dollar weakness and favorable emerging market sentiment. Investors remain cautious toward Poland, mainly due to fiscal uncertainty, political tensions, and expectations of further rate cuts by the National Bank of Poland (NBP). Over a 6–12 month horizon, possible rate cuts and planned increases in foreign debt issuance may limit the zloty’s appreciation potential.
Poland’s public debt will face significant upward pressures through 2035. In the baseline scenario, the European Commission forecasts the debt-to-GDP ratio rising from about 60% in 2025 to 95% by 2035. This trajectory requires ongoing monitoring, especially given the persistent structural deficit. Debt levels may exceed 100% of GDP, illustrating public finances’ sensitivity to macroeconomic shocks and rising financing costs. For this reason, most analysts expect fiscal consolidation in Poland in the coming years.
