Poland’s draft 2027 budget: Not great, not terrible
The desk interprets Poland's draft budget for 2027 as a missed opportunity for fiscal consolidation, projecting a significant deficit of 7.1% of GDP, the largest in the EU. Per the full note from ing-think, while the government's forecasts for GDP growth at 3.0% and inflation at 2.8% are reasonable, the lack of immediate fiscal discipline suggests a challenging outlook for the Polish zloty. Concerns over delayed fiscal reforms will likely weigh on investor sentiment towards PLN, particularly heading into an election year where populist spending could further strain finances and skew budget expectations.
What the desk is arguing
The desk expects that Poland's anticipated fiscal deficit will persist as a primary headwind for the zloty, complicating monetary policy amidst global economic uncertainties. Per the full note source, the draft budget reflects a continuation of the high deficit trend, exacerbated by growing public spending commitments without a clear path to fiscal improvement.
The assumption of a GDP growth tied to a moderate inflation outlook indicates a stable yet vulnerable economic environment. The projected wage growth of 5.9% is indicative of a tightening labor market, but combined with fiscal irresponsibility, it poses risks for inflation that could pressure the NBP’s stance in the future.
Where it sits in our coverage
Our consensus target for the zloty stands at 1.075, with a range from 1.04 to 1.12. Specifically, we see jpmorgan targeting 1.10 for Mar-26 and bofa positioning more conservatively at 1.04.
This view aligns with our expectation of continued zloty weakness, particularly given the upper bound of our consensus reflects market caution about fiscal policies heading into 2027 elections, suggesting more downside risk remains for PLN.
How other firms see it
Firms with a bearish stance include bofa, which sees the zloty weaker given the budget pressures, while jpmorgan shares a more neutral to cautiously optimistic view that hinges on planned economic reforms. Aligned firms note the troublesome budget projections against a backdrop of other central European currencies potentially faring better due to stronger regional cohesion and fiscal discipline.
Potentially relevant indicators include Poland's inflation trajectory and the central bank's policy adjustments in response to fiscal challenges. Currency pair dynamics like EUR/PLN may be especially illustrative of shifting market sentiment as the year progresses.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Poland's 2027 budget suggests a 7.1% fiscal deficit, the highest in the EU.
- 02GDP growth is forecasted at 3.0% with inflation at 2.8%, but risks remain.
- 03Delayed fiscal consolidation complicates Zloty outlook amid upcoming elections.
- 04Market expectations are cautious, with positioning leaning towards a weaker PLN.
Market implications
Traders should monitor key thresholds in the EUR/PLN pair, particularly if it approaches levels above 4.60, as market sentiment may shift in response to budget discussions or changes in NBP policy direction. With continued fiscal woes, the PLN may face further depreciation against major currencies if issues remain unresolved.
Risks to this view
If the government unexpectedly announces stringent fiscal reforms or significantly better than expected growth metrics emerge, it could reverse the bear sentiment towards PLN. Additionally, broader eurozone economic stability could provide a tailwind for regional currencies, including the zloty, diminishing its weak outlook.
Articles Poland’s draft 2027 budget: Not great, not terrible Published 14:00 Poland Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Poland is on course to run the EU's largest fiscal deficit in 2027 at 7.1% of GDP. While the draft budget is not as irresponsible as some investors had feared, given next year's general election and the populist ideas promoted by the ruling party and the opposition, fiscal consolidation has been delayed once again Adam Antoniak , Leszek Kasek and Mateusz Sutowicz The fiscal deficit is set to run above 7% of GDP in Poland Macroeconomic assumptions seem reasonable The macroeconomic assumptions underpinning the draft state budget do not appear particularly controversial. The government is forecasting GDP growth of 3.0% and CPI inflation of 2.8%.
These projections are broadly in line with our baseline scenario, which envisages economic growth of 3.2% next year and consumer inflation of around 2.5%. Similar to our expectations, the government also expects wage growth to continue moderating. According to the Ministry of Finance's projections, the average wage in the economy will increase by 5.9%, following estimated growth of 6.4% in 2026.
The registered unemployment rate is forecast to stand at 6.0% at the end of 2027, compared with our projection of 5.9%. Key variables in the 2027 draft state budget Source: Polish Press Agency "> Source: Polish Press Agency Fiscal imbalance to remain high The 2027 general government deficit is projected at 7.1% of GDP and will likely be the highest in the European Union next year. The 2026 deficit estimate was revised to 7.1% of GDP from 6.5% of GDP projected in the 2026 budget act due to, among other things, the fiscal costs of the temporarily lowered excise duty and VAT rate on fuels.
The draft budget embraces fiscally neutral changes to direct taxes that were announced previously. The list of spending priorities remains long, including (1) security, (2) healthcare and (3) economic growth. The 2027 draft budget bill means continued fiscal expansion and a lack of progress in the consolidation of public finances.
Authorities are not taking steps to end the excessive deficit and bring it below 3% of GDP any time soon. As a result, public debt will continue mounting and may face limits envisaged in the public finance law in 2028 or 2029. The domestic definition of debt above 55% of GDP requires undertaking substantial austerity measures and the constitutional limit of 60% of GDP allows no deficit in the budget act next year.
Borrowing needs in 2027 will be lower amid fewer grants and loans from the EU At first glance, projected gross borrowing needs for 2027 compare favourably with the expected 2026 outturn. While the details of the draft budget have yet to be released, we assume this largely reflects the timing of EU fund disbursements. The scale of loans financed from European funds will be lower in 2027 than in 2026, following the completion of the National Recovery and Resilience Plan, reducing borrowing requirements financed through non-market sources.
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