In his weekly column, economist Rafał Hirsch examines Poland's deteriorating consumer sentiment, stock market movements, budget challenges, and the contrasting monetary policies of Hungary and Poland.
What the future holds
The mood of Polish workers is deteriorating. Increasingly, they fear that the job market situation will worsen, along with their personal finances. This is evident in the latest consumer sentiment survey conducted monthly by Poland’s statistical office, GUS. Meanwhile, data shows a noticeable rise in inflation expectations.
Nearly 31% of respondents believe their financial situation will be slightly or significantly worse in a year. This is the highest percentage since August last year, and eight percentage points higher than in January, when – for the only time since the start of the pandemic in March 2020 – optimists slightly outnumbered pessimists. Currently, only 15.5% of respondents believe their financial situation will improve, the lowest since July last year.
As few as 16.6% of respondents believe the overall situation in the country will improve, the lowest since October last year. Meanwhile, 45.3% expect it to worsen, the highest in a year, and 36.8% fear rising unemployment, the highest since March last year. Poles are also worried again about rising inflation, which aligns with the forecasts of the vast majority of economists.
In total, 15.1% of respondents expect prices to rise faster than currently, the highest since November 2022. Additionally, 43.6% – the highest since March last year – believe prices will continue to rise at the current pace. Meanwhile, 34.1% of respondents believe inflation will fall, the lowest since January 2023.
Consumer sentiment is crucial for the economy because it can influence the growth rate of consumption, which is the primary driver of economic growth. Consumers fearing a worsening situation might be more cautious with their spending, which can be a reasonable decision that is beneficial for individual households but leads to reduced demand and slower economic growth on a wider, national scale.
Comarch's stock surge
Let’s take a look at the situation of companies on the Warsaw Stock Exchange. IT services provider Comarch's shares increased by 14.2% over the past week, with nearly all this growth occurring on Wednesday. This surge followed news that CVC Capital Partners, known in Poland for investing in the Żabka brand (the country’s largest convenience store chain), plans to acquire the company and delist its shares from the stock exchange.
CVC intends to pay investors 315.4 złotys (€73.62) per Comarch share, 10% above the stock price a week ago. However, many investment and pension funds are among Comarch's shareholders and may negotiate a higher price with CVC.
The mood of Polish workers is deteriorating. Increasingly, they fear that the job market situation will worsen, along with their personal finances. This is evident in the latest consumer sentiment survey conducted monthly by Poland’s statistical office, GUS. Meanwhile, data shows a noticeable rise in inflation expectations.
Nearly 31% of respondents believe their financial situation will be slightly or significantly worse in a year. This is the highest percentage since August last year, and eight percentage points higher than in January, when – for the only time since the start of the pandemic in March 2020 – optimists slightly outnumbered pessimists. Currently, only 15.5% of respondents believe their financial situation will improve, the lowest since July last year.
As few as 16.6% of respondents believe the overall situation in the country will improve, the lowest since October last year. Meanwhile, 45.3% expect it to worsen, the highest in a year, and 36.8% fear rising unemployment, the highest since March last year. Poles are also worried again about rising inflation, which aligns with the forecasts of the vast majority of economists.
In total, 15.1% of respondents expect prices to rise faster than currently, the highest since November 2022. Additionally, 43.6% – the highest since March last year – believe prices will continue to rise at the current pace. Meanwhile, 34.1% of respondents believe inflation will fall, the lowest since January 2023.
Consumer sentiment is crucial for the economy because it can influence the growth rate of consumption, which is the primary driver of economic growth. Consumers fearing a worsening situation might be more cautious with their spending, which can be a reasonable decision that is beneficial for individual households but leads to reduced demand and slower economic growth on a wider, national scale.
Comarch's stock surge
Let’s take a look at the situation of companies on the Warsaw Stock Exchange. IT services provider Comarch's shares increased by 14.2% over the past week, with nearly all this growth occurring on Wednesday. This surge followed news that CVC Capital Partners, known in Poland for investing in the Żabka brand (the country’s largest convenience store chain), plans to acquire the company and delist its shares from the stock exchange.
CVC intends to pay investors 315.4 złotys (€73.62) per Comarch share, 10% above the stock price a week ago. However, many investment and pension funds are among Comarch's shareholders and may negotiate a higher price with CVC.
Among the sellers will be the heirs of Janusz Filipiak, the company's founder and president, who passed away last year. They collectively hold shares granting over 67% of voting rights, a controlling stake at the General Meeting of Shareholders.
"Building Comarch with my husband, we always believed in making bold decisions about its future," said Elżbieta Filipiak, widow of the founder and chair of the supervisory board. “My husband dreamed of Comarch being known not only in Poland but also internationally. We have achieved much in this regard. We are confident that CVC Capital Partners is the right partner to support the company's further international growth.” If the acquisition succeeds, CVC will delist Comarch from the stock exchange, where it has been listed since March 1999.
Wage hikes for public sector workers
The finance ministry has changed its stance and agrees that public sector workers should receive real wage increases next year. Previously, budget assumptions indicated that inflation would be 4.1% and public sector wages would increase by the same amount, resulting in no real change for employees. Meanwhile, the government planned more significant increases for the minimum wage, average national wage, and higher pension indexation, leaving the public sector feeling disadvantaged.
Finance Minister Andrzej Domański revised his position after consultations with the Social Dialogue Council. He announced that public sector wages would grow faster than the forecast inflation next year, resulting in a real increase. However, he noted that the wage increase would be "slight," emphasizing the need to consider public finance security.
Poland's public sector deficit has exceeded 5% of GDP for over a year, primarily due to defense spending. Poland will soon be subject to the EU's excessive deficit procedure, which requires efforts to reduce the deficit and avoid increasing government spending. Hence, there is significant caution in planning public sector wage increases.
Budget situation challenging
In June, the budget deficit amounted to nearly 17 billion złotys (€4 billion), primarily due to negative CIT tax revenues. Typically, CIT generates at least several billion złoty monthly, but this time revenues were 1.3 billion złotys in the red, which seems strange at first glance. This occurred because tax offices issued more refunds than they received in revenue due to annual tax returns filed by April 2.
The same happened with PIT in March, when refunds exceeded revenue for a month. Due to the "negative" CIT, tax revenues in June were over a quarter leaner than last year, despite a 30% increase in VAT revenue. Meanwhile, expenditures increased by nearly 30%, resulting in a budget deficit for the fifth consecutive month, with four of those months exceeding 15 billion złotys (€3.50 bn). Over the past 12 months, the budget deficit has exceeded 140 billion złotys (€32.68 bn).
Poland's budget has a significant deficit due to increased military spending, teacher salary hikes, and raising child benefits from 500 to 800 złotys per month. Additionally, the budget had to finance the "13th" pension payment – a bonus payout bringing the total yearly payments to 13 instead of 12. These payments had been previously funded by the Solidarity Fund.
On the other hand, the "Polish Deal" program – a comprehensive economic reform initiative by the Polish government aimed at boosting the economy through tax cuts, increased social spending, and public investments – reduced PIT revenues, and the anti-inflation shield lowered VAT revenues due to frozen energy and gas prices and a zero VAT rate on food until April.
Needing a recharge?
Electric vehicle sales in Poland remain very low, according to new data from the European Automobile Manufacturers' Association (ACEA). In the first half of the year, electric vehicles accounted for only 3.2% of new car sales in Poland, the third-lowest in the EU. Only Croatia (2%) and Slovakia (2.6%) had lower shares. The EU average is 12.5%. Petrol cars remain the most popular in the EU, accounting for 35% of sales, followed by hybrids (29%) and diesels (13%). In Poland, however, hybrids dominate new car sales at 46%, well above the EU average. Meanwhile, petrol cars make up 36% and diesels only 9%.
Overall, new car sales in Poland increased by 16% in the first half of the year, the second-best result in the EU after Bulgaria's 30% increase. The growth in Poland is primarily driven by new hybrid sales (up 45%, the third-highest in the EU). Petrol car sales fell by 4%, diesel sales rose by 1.7%, and electric vehicle sales grew by 4.3%.
According to ACEA, the best-selling car brands in the EU are Volkswagen, Toyota, Renault, Škoda, BMW, and Peugeot, accounting for 40% of all car sales in the EU.
Average wages on the rise
The average wage in Polish companies employing at least ten people was 11% higher in June than a year ago. With inflation at 2.6%, this means real wage growth of 8.6%. While this is rapid growth, it is the slowest since December last year, and slower than economists' expectations.
Employment in companies is slowly declining. It is 0.4% lower than a year ago, and compared to May, it decreased by 3,200 people. Since January, employment has fallen by over 31,000 people, compared to 17,300 in the same period last year, indicating a faster rate of employment reduction this year.
The statistical office also reported that industrial production in June was 0.3% higher than a year ago. These numbers look modest but are better than those in May, with a 1.6% decline and slightly better than analysts' expectations of a 1.3% drop.
In summary, production is growing slowly but faster than expected, and wages are rising quickly but slower than expected, which is not a bad combination.
Increased spending on trains
Poles are spending more on both new cars and train travel, leading to increased profits for rail firm Intercity. Last year, the company reported a profit of 90.7 million złotys (€21.17m), 73% higher than in 2022. Sales revenues grew by 28% to 4.999 billion złotys (€1.17 bn). However, Intercity – the national long-distance train operator – remains a low-margin business. Achieving nearly zł 100 million profit on 5 billion złotys revenue results in a net margin of just 1.8%.
In 2023, Intercity transported a record of over 68 million passengers. The previous year saw nearly 60 million passengers. This year, the record will likely be broken again, with almost 37 million passengers in the first six months of the year. If the second half is similar, the annual number of passengers should exceed 70 million.
Interest rate policies: Hungary vs. Poland Budapest is set to reduce interest rates this week, marking the tenth cut in ten months. During a high inflation period at the turn of 2022 and 2023, Hungary raised its main rate to 13%. Now, the rate stands at 7% and is expected to drop to 6.75%, as inflation has significantly decreased.
In contrast, Poland's rate-setting Monetary Policy Council has taken a different approach. Although inflation in Poland has also significantly declined, the council asserts that it may rise again in the coming months. Consequently, interest rates in Poland remain unchanged, with central bank governor Adam Glapiński suggesting this situation could persist until 2026.
As a result, the Polish złoty remains strong while the Hungarian forint has gradually depreciated. Since October last year, when Hungary began cutting rates, the euro's value has increased by over 2% in Hungary, while in Poland, it has decreased by nearly 4%, reaching its lowest in four years.
Regarding their mutual exchange rate, the złoty cost around 86 forints a year ago and now exceeds 91 forints. Thus, due to differences in monetary policy, holidays in Poland have become several percent more expensive for Hungarians, while trips to Lake Balaton or Budapest have become slightly cheaper for Poles.
"Building Comarch with my husband, we always believed in making bold decisions about its future," said Elżbieta Filipiak, widow of the founder and chair of the supervisory board. “My husband dreamed of Comarch being known not only in Poland but also internationally. We have achieved much in this regard. We are confident that CVC Capital Partners is the right partner to support the company's further international growth.” If the acquisition succeeds, CVC will delist Comarch from the stock exchange, where it has been listed since March 1999.
Wage hikes for public sector workers
The finance ministry has changed its stance and agrees that public sector workers should receive real wage increases next year. Previously, budget assumptions indicated that inflation would be 4.1% and public sector wages would increase by the same amount, resulting in no real change for employees. Meanwhile, the government planned more significant increases for the minimum wage, average national wage, and higher pension indexation, leaving the public sector feeling disadvantaged.
Finance Minister Andrzej Domański revised his position after consultations with the Social Dialogue Council. He announced that public sector wages would grow faster than the forecast inflation next year, resulting in a real increase. However, he noted that the wage increase would be "slight," emphasizing the need to consider public finance security.
Poland's public sector deficit has exceeded 5% of GDP for over a year, primarily due to defense spending. Poland will soon be subject to the EU's excessive deficit procedure, which requires efforts to reduce the deficit and avoid increasing government spending. Hence, there is significant caution in planning public sector wage increases.
Budget situation challenging
In June, the budget deficit amounted to nearly 17 billion złotys (€4 billion), primarily due to negative CIT tax revenues. Typically, CIT generates at least several billion złoty monthly, but this time revenues were 1.3 billion złotys in the red, which seems strange at first glance. This occurred because tax offices issued more refunds than they received in revenue due to annual tax returns filed by April 2.
The same happened with PIT in March, when refunds exceeded revenue for a month. Due to the "negative" CIT, tax revenues in June were over a quarter leaner than last year, despite a 30% increase in VAT revenue. Meanwhile, expenditures increased by nearly 30%, resulting in a budget deficit for the fifth consecutive month, with four of those months exceeding 15 billion złotys (€3.50 bn). Over the past 12 months, the budget deficit has exceeded 140 billion złotys (€32.68 bn).
Poland's budget has a significant deficit due to increased military spending, teacher salary hikes, and raising child benefits from 500 to 800 złotys per month. Additionally, the budget had to finance the "13th" pension payment – a bonus payout bringing the total yearly payments to 13 instead of 12. These payments had been previously funded by the Solidarity Fund.
On the other hand, the "Polish Deal" program – a comprehensive economic reform initiative by the Polish government aimed at boosting the economy through tax cuts, increased social spending, and public investments – reduced PIT revenues, and the anti-inflation shield lowered VAT revenues due to frozen energy and gas prices and a zero VAT rate on food until April.
Needing a recharge?
Electric vehicle sales in Poland remain very low, according to new data from the European Automobile Manufacturers' Association (ACEA). In the first half of the year, electric vehicles accounted for only 3.2% of new car sales in Poland, the third-lowest in the EU. Only Croatia (2%) and Slovakia (2.6%) had lower shares. The EU average is 12.5%. Petrol cars remain the most popular in the EU, accounting for 35% of sales, followed by hybrids (29%) and diesels (13%). In Poland, however, hybrids dominate new car sales at 46%, well above the EU average. Meanwhile, petrol cars make up 36% and diesels only 9%.
Overall, new car sales in Poland increased by 16% in the first half of the year, the second-best result in the EU after Bulgaria's 30% increase. The growth in Poland is primarily driven by new hybrid sales (up 45%, the third-highest in the EU). Petrol car sales fell by 4%, diesel sales rose by 1.7%, and electric vehicle sales grew by 4.3%.
According to ACEA, the best-selling car brands in the EU are Volkswagen, Toyota, Renault, Škoda, BMW, and Peugeot, accounting for 40% of all car sales in the EU.
Average wages on the rise
The average wage in Polish companies employing at least ten people was 11% higher in June than a year ago. With inflation at 2.6%, this means real wage growth of 8.6%. While this is rapid growth, it is the slowest since December last year, and slower than economists' expectations.
Employment in companies is slowly declining. It is 0.4% lower than a year ago, and compared to May, it decreased by 3,200 people. Since January, employment has fallen by over 31,000 people, compared to 17,300 in the same period last year, indicating a faster rate of employment reduction this year.
The statistical office also reported that industrial production in June was 0.3% higher than a year ago. These numbers look modest but are better than those in May, with a 1.6% decline and slightly better than analysts' expectations of a 1.3% drop.
In summary, production is growing slowly but faster than expected, and wages are rising quickly but slower than expected, which is not a bad combination.
Increased spending on trains
Poles are spending more on both new cars and train travel, leading to increased profits for rail firm Intercity. Last year, the company reported a profit of 90.7 million złotys (€21.17m), 73% higher than in 2022. Sales revenues grew by 28% to 4.999 billion złotys (€1.17 bn). However, Intercity – the national long-distance train operator – remains a low-margin business. Achieving nearly zł 100 million profit on 5 billion złotys revenue results in a net margin of just 1.8%.
In 2023, Intercity transported a record of over 68 million passengers. The previous year saw nearly 60 million passengers. This year, the record will likely be broken again, with almost 37 million passengers in the first six months of the year. If the second half is similar, the annual number of passengers should exceed 70 million.
Interest rate policies: Hungary vs. Poland Budapest is set to reduce interest rates this week, marking the tenth cut in ten months. During a high inflation period at the turn of 2022 and 2023, Hungary raised its main rate to 13%. Now, the rate stands at 7% and is expected to drop to 6.75%, as inflation has significantly decreased.
In contrast, Poland's rate-setting Monetary Policy Council has taken a different approach. Although inflation in Poland has also significantly declined, the council asserts that it may rise again in the coming months. Consequently, interest rates in Poland remain unchanged, with central bank governor Adam Glapiński suggesting this situation could persist until 2026.
As a result, the Polish złoty remains strong while the Hungarian forint has gradually depreciated. Since October last year, when Hungary began cutting rates, the euro's value has increased by over 2% in Hungary, while in Poland, it has decreased by nearly 4%, reaching its lowest in four years.
Regarding their mutual exchange rate, the złoty cost around 86 forints a year ago and now exceeds 91 forints. Thus, due to differences in monetary policy, holidays in Poland have become several percent more expensive for Hungarians, while trips to Lake Balaton or Budapest have become slightly cheaper for Poles.
