Złoty Outlook: Strong Fundamentals Offset Rising Government Debt

Saying that Poland has recently joined the ranks of the world’s most important economies would not be an exaggeration. However, this does not mean that every aspect of the economic situation is perfect, and certain cracks in the picture are becoming more apparent. Even so, solid macroeconomic fundamentals and a relatively favorable external environment continue to support the złoty, which should keep the EUR/PLN exchange rate near 4.25.

Key points:

• The EUR/PLN exchange rate remains in a narrow range.
• Prices and wages have cooled.
• The NBP continues to cut rates; further monetary easing is approaching.
• Economic growth remains relatively strong.
• The fiscal deficit has increased significantly.
• We forecast a stable EUR/PLN close to current levels.

Since early 2025, the złoty has been one of the best-performing emerging-market currencies and currently ranks roughly in the middle of the European currency pack. Despite shifts in global trade and investors’ risk appetite, EUR/PLN volatility has been limited over the past six months, with the pair hovering close to our long-term forecast of 4.25.

The external environment — historically crucial for currencies in interconnected economies like Poland — is relatively favorable. The 15% U.S. tariffs on the EU are not a growth catalyst, but Poland’s exposure is limited; exports to the U.S. account for just 3.5% of total exports. Falling trade uncertainty should boost consumer and business sentiment. Additionally, substantial fiscal stimulus in Germany, Poland’s key trading partner, bodes well for the outlook.

Economic growth remains solid, though activity is uneven

Growth has so far been relatively strong — exceeding 3% in recent quarters. This trend is expected to continue. Annual GDP growth will likely reach around 3.5% this year and stay near that level next year. Strong economic activity and the appreciation of the złoty in recent years have helped Poland join the world’s twenty largest economies, and its GDP per capita (PPP) has surpassed Japan’s this year. Poland’s success is increasingly recognized globally, and Polish equities have recently been among the best-performing worldwide.

Economic activity has been uneven for some time — consumption dominates, while investment remains weak. A noticeable cooling in the labor market is becoming more visible. The unemployment rate rose in September to 5.6%, its highest level in a year and a half. Meanwhile, wage growth slowed to 7.1% — the weakest pace since February 2021 — before edging up slightly again. This deterioration was partly expected (particularly regarding wages), and it has been moderate enough not to significantly weaken consumer sentiment. While the labor-market slowdown is not severe, we will continue to monitor it closely.

A significantly widening fiscal deficit draws attention

We will follow fiscal developments with similar caution. Poland’s deficit will end the year at around 7% of GDP, and its decline is expected to be slow. This is partly due to higher military spending, driven by escalating Russian aggression (as illustrated by September’s drone attack). Rating agencies have taken note — two of the “Big Three” (Fitch and Moody’s) have revised Poland’s rating outlook from stable to negative. This reflects projections showing a substantial rise in public debt. After reaching 65% of GDP in 2026, this upward trend will likely continue in subsequent years.

Further rate cuts in 2026 — down to around 3.5%

Cooling in the labor market, combined with inflation stabilizing within the National Bank of Poland’s target range (2.5% ± 1 pp.), has enabled further rate cuts. So far this year, the NBP has cut rates by 150 bps, with 25-bp moves at each of the past four meetings.

We expect more cuts in 2026, although the room for easing is limited — largely due to the high fiscal deficit repeatedly highlighted by NBP Governor Adam Glapiński. We suspect that unless labor-market loosening intensifies, the reference rate will likely fall to around 3.5% in the first half of next year (from the current 4.25%), a view broadly consistent with market expectations.

EUR/PLN near 4.25 for the foreseeable future

We believe the złoty will maintain its position against the euro over our forecast horizon. Poland should not suffer major losses from U.S. tariffs, its economic outlook is positive, interest rates remain relatively high, and macro fundamentals are generally sound.

The fiscal situation may become a challenge in the future. Nevertheless, public debt remains low by EU and advanced-economy standards, and Poland has no visible difficulty placing its debt on the market. Therefore, we are not overly concerned at this stage. We maintain our view on EUR/PLN and keep our forecast for the pair unchanged at 4.25 across the projection horizon.

Exchange Rate Forecasts

* EUR/PLN forecast reflects the złoty outlook;
EUR/USD dynamics are key for USD/PLN projections.