Economic news

• RETAIL SALES: Retail sales fell by 0.5% yoy in February, significantly below forecasts which had expected an increase of around 3% yoy. While several sector-specific factors contributed to the weak result, the slowdown in sales was broad-based. In our view, it makes sense to average the January and February results—on that basis, the sales growth rate is roughly in line with the average from the second half of last year. Therefore, the scenario of a 3% increase in private consumption this year—without upside risks—remains intact. We shared more on this data in our snap comment.
• RATES: Last week, we’ve heard statements from a number of MPC members:

H.Wnorowski told Reuters that following the February inflation reading—which was better than projected in the March NBP forecast—a rate cut could come sooner, potentially at the beginning rather than the end of Q3 2025.

I.Duda added that the July NBP projection would provide key arguments for interest rate cuts (in terms of both timing and scale), though she did not specify whether this could happen as early as July.

G.Masłowska, on the other hand, believes that rate cuts will be possible only toward the end of 2025—unless, in the meantime (specifically in July), there are “serious, convincing arguments for a rate cut.” Compared to her previous public statements, this latest comment from Masłowska can be seen as more dovish.

I.Dąbrowski stated that the probability distribution between scenarios of rate cuts and keeping interest rates unchanged in 2025 is symmetric. He added that he personally supports a more expansionary monetary policy and that a rate cut could occur in Q3 2025—provided that the July NBP macroeconomic projection shows (1) deeper disinflation compared to the March edition and (2) no acceleration in inflation within the forecast horizon.

A.Glapiński – NBP governor – reiterated his view that inflation will not return to the inflation target in the coming months (in his opinion, this will only happen in 2027, in line with the latest NBP projection), and that there are currently no grounds for lowering interest rates.

We hold the opposite view when it comes to inflation forecasts. Taking into account the slowdown in wages and the impact of the inflation basket revision, we believe that by July 2025, CPI inflation will already be within the NBP’s target fluctuation band, and by mid-2025, it will be firmly anchored at 2.5%. For these reasons, we expect the Monetary Policy Council (RPP) to begin a rate-cutting cycle in Q3 2025.

• LABOUR MARKET: The unemployment rate in February stood at 5.4%, unchanged from the previous month, according to the Central Statistical Office. The Ministry of Family, Labour and Social Policy had earlier estimated the February unemployment rate at 5.5%. Thus, the unemployment rate remained stable compared to January, both in raw and seasonally adjusted terms. Today’s reading is in line with the consensus gathered ahead of the preliminary estimate.
• MONEY SUPPLY: The M3 money supply grew at a slightly slower pace in February—up 9.1% yoy compared to 9.4% in the previous month. So far, February's banking and credit data show a continuation of trends observed in recent months: household deposits are growing at a double-digit rate, with a significant contribution from long-term deposits (which is why M1 growth remains moderate). Corporate loans increased by around 5%, in line with previous months.

The Subtle Charm of Convergence

Yesterday, Eurostat published a flash estimate of GDP per capita for all European Union countries, calculated using purchasing power parity (PPP)—that is, adjusted for differences in price levels between countries. The data confirms a well-known rule among economists: the convergence principle. In general, less affluent countries tend to grow faster, while the wealthiest ones develop more slowly—ultimately leading to a gradual equalization of prosperity across nations. Poland is no exception: in 2024, GDP per capita measured by PPP reached 79% of the EU average, whereas at the time of accession 20 years ago, it was only 52%.

GDP per capita (PPP), in the EU countries (EU = 100) in 2024

Source: Eurostat, Pekao Research

The 2024 ranking is topped by two countries that clearly stand out from the rest. Both Luxembourg and Ireland report GDP per capita (measured by PPP) at more than twice the European average—241% and 211%, respectively. In Luxembourg’s case, this impressive result stems from the high number of foreign workers employed in high value-added sectors such as finance and insurance. The goods and services they produce contribute to Luxembourg's total GDP, which is then divided only among residents when calculating per capita figures (excluding the foreign workers). Ireland’s GDP, on the other hand, is inflated by revenues from copyrights and intellectual property earned by multinational corporations that have their European headquarters in Dublin.

The GDP per capita indicator measured by purchasing power parity (PPP) allows for a reliable international comparison of prosperity across countries, taking into account both population size and differing price levels. For example, in Poland, the nominal GDP per capita in current prices in 2024 amounted to just 57% of the European average. However, it's important to note that the average price level of consumer goods and services in Poland is lower than in the rest of the EU (meaning that for 100 euros, you can buy more in Poland than, say, in Germany). As a result, Poland’s relative GDP per capita measured by PPP is 22 percentage points higher than the nominal value, reaching 79% of the EU average. Even more significant effects of price differences can be observed in Romania: while the country’s nominal GDP per capita is only 47% of the EU average, its GDP per capita in PPP terms is 79%—the same as Poland’s.

Comparison of GDP per capita, both in current prices and PPP (EU = 100)

Source: Eurostat, Pekao Research

Finally, it’s worth taking a closer look at macroeconomic convergence within the EU—that is, the process by which the Union’s poorer economies are catching up with the wealthiest member states. Data on relative GDP per capita indices based on PPP clearly show that former—such as Poland, which thirty years ago stood at just 44% of the European average—have consistently achieved faster economic growth than their wealthier partners. As a result, the gap between these countries and the EU average has steadily narrowed (for Poland, from 56 percentage points down to 21 percentage points over 30 years).

At the same time, GDP convergence means that the richest economies are finding it increasingly difficult to maintain their above-average positions, with the distance between them and the EU average also shrinking (for Germany, from 33 percentage points in 1995 to just 15% today). It’s also worth noting that among selected countries from our region (the Czech Republic, Hungary, and the Baltic states), no single “growth champion” has emerged—none have grown significantly faster than the others. In other words, within this group, the theory of convergence doesn’t quite apply.

This suggests that while Poland’s pace of increasing prosperity is impressive compared to the EU average, it doesn’t differ much from the achievements of other Central European countries. In short, Poland’s rapid growth—though notable—is not exactly an economic miracle (Wirtschaftswunder) east of the river Oder.

Convergence of GDP per capita (PPP) in Central Europe

Source: Eurostat, Pekao Research

To conclude, let’s try to look a bit into the future. Data from the past 30 years show that Poland has been closing the GDP per capita (PPP) gap with the European average by about 1.2 percentage points per year. According to the convergence principle, Poland’s pace of catching up with the EU is likely to slow down rather than accelerate—since as we become wealthier, our growth rate naturally decreases. This suggests that Poland’s GDP per capita based on PPP could reach the EU average in about 20 years.

Market update

The prospect of trade wars and risk-off sentiment does not bode well for Polish financial market this week. Under such conditions, the zloty is likely to weaken, and bonds to depreciate. However, the end of last week was favorable for Polish assets. The zloty strengthened against both the euro (from a peak of 4.20 to 4.18) and the dollar (from 3.90 to 3.86), while POLGB yields declined. That’s a good sign heading into the new week.

The main event on the domestic market will be the Monetary Policy Council meeting on Wednesday and the NBP President’s press conference on Thursday. Although recent weeks have provided several reasons for a more dovish stance, rate cuts are currently off the table, and no major shift in A. Glapiński’s rhetoric should be expected. As recently as last week, he maintained that inflation in Poland remains too high, is not falling, and leaves no room for monetary easing.

A potential crack in the RPP’s hawkish stance could be an (unsuccessful) motion to cut rates. If such a motion is submitted, it could fuel market bets on an earlier rate cut—perhaps as soon as June. However, we remain skeptical. Most Council members align with Glapiński’s still-hawkish position. A turn toward easing is unlikely before the July projection.

Our base case for the coming week is stability in both the zloty and bond pricing near current levels.