Initial reactions on the international markets to Donald Trump’s attempted assassination have been muted, despite many political experts suggesting that this incident could significantly impact the U.S. election campaign and increase Trump’s chances of winning in November.
Market dynamics might change when the American markets open (around 2:00 PM CET), or it might be that the market had already assumed Trump was the favorite in this year's U.S. elections, making the assassination attempt less impactful.
So far, the dollar has seen only a slight strengthening, with the Polish foreign exchange market moving up by just half a grosz (PLN 0,005). Similarly, there are minimal movements in U.S. bonds. There has also been no decisive reaction on the Asian stock exchanges, which have been open for several hours.
Currently, it appears that cryptocurrencies, which Trump has recently spoken positively about, are reacting most strongly to the assassination attempt and the possibility it will increase his chances of victory. Bitcoin has risen by 8% since Saturday.
Before Donald Trump was shot, the Polish currency had been strengthening day by day. On Friday, the USD/PLN stood at around 3.90 złoty, the lowest since December last year. The złoty's recent strengthening is mainly due to the extremely hawkish stance of the rate-setting Monetary Policy Council, which has indicated that it does not intend to lower interest rates either this year or next year due to concerns about a resurgence of inflation.
Poland and its central bank differ in this regard from both the European Central Bank and the central banks of the Czech Republic and Hungary, where a string of interest rate cuts has already begun. Last week, new data from Prague and Budapest showed a clear decline in inflation, fueling market expectations for further rate cuts. As a result, the złoty is gaining value, as Poland remains the only country in the region where deposit and other financial instrument interest rates are likely to remain high, increasing the relative attractiveness of the Polish currency.
So far, the dollar has seen only a slight strengthening, with the Polish foreign exchange market moving up by just half a grosz (PLN 0,005). Similarly, there are minimal movements in U.S. bonds. There has also been no decisive reaction on the Asian stock exchanges, which have been open for several hours.
Currently, it appears that cryptocurrencies, which Trump has recently spoken positively about, are reacting most strongly to the assassination attempt and the possibility it will increase his chances of victory. Bitcoin has risen by 8% since Saturday.
A golden opportunity?
Before Donald Trump was shot, the Polish currency had been strengthening day by day. On Friday, the USD/PLN stood at around 3.90 złoty, the lowest since December last year. The złoty's recent strengthening is mainly due to the extremely hawkish stance of the rate-setting Monetary Policy Council, which has indicated that it does not intend to lower interest rates either this year or next year due to concerns about a resurgence of inflation.
Poland and its central bank differ in this regard from both the European Central Bank and the central banks of the Czech Republic and Hungary, where a string of interest rate cuts has already begun. Last week, new data from Prague and Budapest showed a clear decline in inflation, fueling market expectations for further rate cuts. As a result, the złoty is gaining value, as Poland remains the only country in the region where deposit and other financial instrument interest rates are likely to remain high, increasing the relative attractiveness of the Polish currency.
Russian inflation on the up
Inflation in Russia behaves quite differently than in the Czech Republic and Hungary. It rose to 8.6% in June, the highest level since February 2023. In June 2023, prices rose by only 3.3%, but since then, the rate has more than doubled. Both food and fuel, as well as services, have become more expensive. For example, vegetable prices are, on average, 19% higher than a year ago.
The central bank in Moscow had feared this development for some time and will likely raise interest rates at its next meeting on July 26. Analysts quoted by Bloomberg suggest an increase of one to two percentage points from the current level of 16%. This would bring rates in Russia almost to the same level as in February and March 2022, when the central bank raised them to 20% to save the weakening ruble just after Russia invaded Ukraine.
That move resulted in a year-long recession, during which inflation fell to around 2.5%. Moscow then lowered interest rates, which helped revive the economy, but the side effect of this revival is rapidly rising inflation. Therefore, rate hikes could soon cool not only inflation but also economic growth.
In previous months, the Russian central bank had already signaled that the Russian economy is overheated and unstable. The rapid economic growth is driven by the war industry and significant consumption, supported by wage increases and the Moscow government's loose fiscal policy. On the other hand, sanctions and the significant problem of finding workers (as many have fled the country or been conscripted) mean that supply generally cannot keep up with the rapidly growing demand, hence the renewed problem with inflation.
Up in smoke
The Polish government plans to adopt a draft bill raising excise tax rates on cigarettes and alcohol at Tuesday’s cabinet meeting. According to a proposal by the Finance Ministry, from January 1, the excise tax on cigarettes would increase by 25% (instead of the current plans to increase them by just 10%). Meanwhile, the tax on smoking tobacco would be hiked by 38%, by 50% on “innovative products,” which include e-cigarettes and tobacco sticks, and by 75% on vaping liquids. The trajectory for alcohol tax increases will also be adjusted. The current plan foresees a 5% annual increase.
According to economists at lender PKO BP, excise tax rates have increased more slowly than inflation in recent years, meaning they have effectively decreased in real terms and are significantly lower than at the beginning of this century. Consequently, alcohol prices have risen much more slowly than, for example, non-alcoholic beverage prices.
Implementing faster paths for excise tax increases on cigarettes and alcohol should also help reduce the public finance sector deficit, which is crucial since Poland will soon be subject to an excessive deficit procedure. The deficit in Poland exceeded 5% of GDP in both this year and last.
Last year, excise tax revenue contributed nearly 85 billion złoty (€ 20 billion) to the state budget, with a significant portion coming from fuel taxation, not just cigarettes and alcohol. Excise tax is the third-largest source of revenue in the budget, following VAT and PIT.
According to recent official data on inflation for May, alcohol prices have increased by 2.8% over the past twelve months, while tobacco product prices have risen by 7.7% in the same period. A faster rise in excise taxes on these goods from January 1 could serve as another inflationary impulse. However, alcohol and cigarettes are not essential goods, and Polish consumers do not spend a significant portion of our budget on them; they account for only 5.7% of the country’s total consumption expenditures in this year's inflation basket.
Council crunch time
The decision regarding the aforementioned excessive deficit procedure is set to be determined by the Council of the European Union, likely during their next meeting. The agenda for this meeting includes addressing this issue.
In June, the European Commission published a report indicating that Poland meets the criteria to enter such a procedure. A few weeks later, the Commission submitted a proposal to the Council to impose this procedure on Poland. The Commission noted that the deficit in Poland's public finance sector reached 5.1% of GDP in 2023, and according to the Polish government, it is expected to remain at this level until the end of 2024. However, the Commission's forecasts suggest it could potentially increase to 5.4% of GDP.
As part of the excessive deficit procedure, Poland must outline a path to reduce the deficit to an acceptable level—below 3% of GDP—by September. This plan must incorporate recommendations from Brussels, which will be provided in the coming weeks, negotiations between Warsaw and the European Commission will revolve around these recommendations.
The big thaw
There is a chance that the Polish government's plan to completely phase out the freezing of electricity prices will undergo another modification. After electricity prices remained stable in the second half of this year (at a level approximately 20% higher than before), there is now a proposal to extend this system into next year to protect consumers from further price hikes starting in January.
The idea comes from the Climate and Environment Ministry, which, during the ongoing work on next year's state budget, has requested funding to extend the support system.
“I believe that next year we will still be at a stage where the system stabilizes, and [...] considering the recently approved tariffs, I see the need to extend the protective umbrella for citizens,” Climate Minister Paulina Hennig-Kloska told private broadcaster Radio ZET. It is also worth noting that while the minister primarily spoke about extending the energy voucher in the radio interview, she later mentioned at her press conference the extension of "protective measures," which does not exclude maintaining the freeze on electricity prices.
According to the earlier plan, starting in January, matters were supposed to return to “normal,” whereupon households pay electricity bills according to tariffs approved by the Energy Regulatory Office. However, it turned out that the new tariff, approved at the end of June and covering 2025 as well, is higher than expected. It averages 622.8 złoty (€146.50) per megawatt-hour. This was an unpleasant surprise, as the head of the Energy Regulatory Office had previously suggested that it might be possible to set it below 600 PLN. The key point is that under the new tariff, after the support system expires on January 1, electricity prices would rise again by over 24% from the current frozen level of 500 PLN (€118) per MWh.
Therefore, the general idea is to extend the system rather than phase it out. Maintaining this system is costly for the state, as it must cover the difference between the frozen price and the tariff price for electricity producers, and there are also costs associated with paying the energy voucher to customers. Therefore, the scale of this aid in 2025 will be decided by the finance minister while constructing the budget.
The sentiment among Polish entrepreneurs is clearly deteriorating. The Monthly Business Climate Index (MIK), calculated by the Polish Economic Institute, fell to 96.8 points in July, the lowest since August of last year.
Readings below 100 points indicate a prevalence of pessimism, while those above 100 indicate optimism. Just two months ago, the MIK was still above 100 points and had remained there almost continuously since November 2023. The improvement in sentiment during this period aligned with forecasts of an impending economic revival. However, something has clearly and quickly gone wrong.
70% of companies now cite high labor costs as a hindrance to their operations, while 60% of them point to high energy prices, and 57% complain about economic uncertainty. Additionally, over 40% of firms report payment delays and difficulties finding workers.
We have the highest percentage of companies reporting a drop in sales since September of last year and the highest drop in orders since December. More and more companies are also reporting excess production capacity relative to their order portfolios. Employment is rising, but at the slowest pace since August of last year.
In June, Chopin International Airport in Warsaw, the largest airport in the country, handled over two million passengers for the first time in its history. This is a 10.5% increase year-on-year and 12% more than in the record year of 2019, just before the pandemic. Last year, the record fell short by only 2% (about 300,000 passengers). Everything now indicates that the record will be broken this year, as the airport has already handled 9.7 million passengers since the beginning of the year, which is 13% more than five years ago.
These passengers are divided into six million in traditional traffic, nearly 2.5 million in low-cost flights, and 1.2 million in charter flights. While the first category remains stable and is even slightly lower compared to 2019, the number of passengers on low-cost airlines has grown by 68% and charter—flights organized by travel agencies to purely vacation destinations—has increased by 47%. The most popular destinations for these flights are Antalya (Turkey), Marsa Alam, and Hurghada (Egypt). In traditional traffic, the most frequent destinations from Chopin Airport are London, Paris, and Amsterdam.
In June, the airport also broke the record for the number of passengers handled in a single day; on June 28, there were nearly 75,000 passengers. Last year's record, set in August, was nearly 68,000 people.
There is also a record in cargo transport. Since the beginning of the year, over 53,500 tons of cargo have been handled at the airport, nearly 3,500 tons more than in the record period of 2022.
Therefore, the general idea is to extend the system rather than phase it out. Maintaining this system is costly for the state, as it must cover the difference between the frozen price and the tariff price for electricity producers, and there are also costs associated with paying the energy voucher to customers. Therefore, the scale of this aid in 2025 will be decided by the finance minister while constructing the budget.
Dark clouds ahead?
The sentiment among Polish entrepreneurs is clearly deteriorating. The Monthly Business Climate Index (MIK), calculated by the Polish Economic Institute, fell to 96.8 points in July, the lowest since August of last year.
Readings below 100 points indicate a prevalence of pessimism, while those above 100 indicate optimism. Just two months ago, the MIK was still above 100 points and had remained there almost continuously since November 2023. The improvement in sentiment during this period aligned with forecasts of an impending economic revival. However, something has clearly and quickly gone wrong.
70% of companies now cite high labor costs as a hindrance to their operations, while 60% of them point to high energy prices, and 57% complain about economic uncertainty. Additionally, over 40% of firms report payment delays and difficulties finding workers.
We have the highest percentage of companies reporting a drop in sales since September of last year and the highest drop in orders since December. More and more companies are also reporting excess production capacity relative to their order portfolios. Employment is rising, but at the slowest pace since August of last year.
Flying high
In June, Chopin International Airport in Warsaw, the largest airport in the country, handled over two million passengers for the first time in its history. This is a 10.5% increase year-on-year and 12% more than in the record year of 2019, just before the pandemic. Last year, the record fell short by only 2% (about 300,000 passengers). Everything now indicates that the record will be broken this year, as the airport has already handled 9.7 million passengers since the beginning of the year, which is 13% more than five years ago.
These passengers are divided into six million in traditional traffic, nearly 2.5 million in low-cost flights, and 1.2 million in charter flights. While the first category remains stable and is even slightly lower compared to 2019, the number of passengers on low-cost airlines has grown by 68% and charter—flights organized by travel agencies to purely vacation destinations—has increased by 47%. The most popular destinations for these flights are Antalya (Turkey), Marsa Alam, and Hurghada (Egypt). In traditional traffic, the most frequent destinations from Chopin Airport are London, Paris, and Amsterdam.
In June, the airport also broke the record for the number of passengers handled in a single day; on June 28, there were nearly 75,000 passengers. Last year's record, set in August, was nearly 68,000 people.
There is also a record in cargo transport. Since the beginning of the year, over 53,500 tons of cargo have been handled at the airport, nearly 3,500 tons more than in the record period of 2022.
