Polish businesses are facing challenges while the outlook for food retailers is bleak. At the same time, the EU has started an excessive deficit procedure against Poland.
Poland to adhere to EU directive on gender equality
The Polish government plans to implement an EU directive aimed at increasing gender equality in the selection process for executive positions in large, publicly listed companies. Under the directive, 33% of all positions on the management and supervisory boards of these companies must be held by women.
However, this does not mean that skills and qualifications will be disregarded. Women will be given priority for positions only if the candidates have equal qualifications. The law will not allow a less qualified woman to take a position over a more qualified man.
Companies will be required to publish annual reports on gender balance within their management and supervisory boards. The Financial Supervision Authority (KNF) will have the authority to impose fines of up to 10% of annual revenues for non-compliance.
These rules will not apply to smaller companies with fewer than 250 employees, annual revenues below 50 million euros, or assets not exceeding 43 million euros.
The regulations are set to come into effect in July 2026 for most companies, and January 2026 for state-owned companies, pending the passage of the necessary legislation by the lower house of parliament. Currently, the government is only in the planning stage of drafting this bill.
Weak quarterly performance for Biedronka
The popular supermarket chain Biedronka, owned by Portuguese company Jeronimo Martins, has reported its weakest quarterly results in years, reflecting potential slowdowns in the Polish economy, particularly among consumers. Recent months have shown weak retail sales data, and Biedronka’s results further confirm this trend.
Notably, like-for-like sales, which compare sales from stores open for at least a year, saw a rare 4.6% decline. Overall network sales, including new stores, grew by only 0.1% in Polish złoty terms. EBITDA operating profit dropped by 16%, and the EBITDA margin fell to 7.6% from 8.5% last year.
This decline can partly be attributed to the Easter calendar shift, with the religious holiday falling in April last year and March this year. However, the company also cites falling food prices and intensified market competition in Poland. Rising costs, especially wages, are also impacting the business.
Jeronimo Martins warns that subsequent quarters may be similar unless consumer demand improves in Poland. The company expects an even larger margin drop in the second half of the year. CFO Ana Luisa Virginia said: "We know that Polish consumers are rational and price-sensitive. If we don't offer good prices, we will lose customers, and it will take a lot of money to win them back."
Following these results, Jeronimo Martins' shares plummeted by 16.6% on the Lisbon stock exchange, with an additional 4% drop the next day, reaching their lowest point since July 2021.
This bleak outlook also affected other market players. Shares in Polish retailer Dino fell by 9.2% on the Warsaw bourse, hitting their lowest since October last year. Meanwhile, shares in Eurocash, owner of Polish brands like Delikatesy Centrum and Lewiatan, dropped by over 8%, the lowest since October 2022. Investors are skeptical that these companies' results will differ significantly from those of Biedronka.
Inflation and monetary policies in Ukraine and Russia
Ukraine, defending against Russian aggression, is also battling rising inflation, a problem shared by Russia. Both countries recently tightened their monetary policies to curb inflation, likely cooling their economic activities. Ukraine, which had been lowering interest rates in recent months, halted this trend, with the main rate now at 13%. In Russia, the rate was increased by 200 basis points to 18%, nearing levels seen after Russia's 2022 invasion of Ukraine. This hike is in response to rising inflation, now at 9%, rather than currency depreciation.
In Ukraine, inflation recently fell below 4% but now stands at 4.8%, with year-end projections around 8.5%. In Russia, forecasts predict 7% inflation by year-end. Ukraine's inflation is driven by energy prices and a weakening of Ukraine’s hryvnia currency, similar to trends in Central Europe. In Russia, the central bank attributes inflation to an overheated economy with demand outpacing supply, labor shortages due to the war, and international sanctions.
Russian central banker Elvira Nabiullina warned of potential stagflation in Russia, a combination of economic slowdown and persistent high inflation, with deep recession being the only escape. Ukraine’s fiscal situation is dire, with a budget deficit of 23% of GDP this year, expected to fall to 18% next year, largely funded by foreign aid amounting to USD 38 billion this year and at least USD 31 billion next year.
Hungary’s economic slowdown
In contrast, Hungary’s economy is cooling, prompting a central bank decision to cut interest rates. Hungary’s inflation is not a current issue, but economic growth is slowing. The government reduced its GDP growth forecast to 2.2–2.3% for this year, down from 2.5%. Economic growth was 1.1% in the first quarter, the best in nearly two years.
Economy Minister Márton Nagy stated that growth might reach 4% next year if export markets recover and the government implements demand-stimulating programs. However, Hungary's inclusion in the EU's excessive deficit procedure limits its ability to increase government spending.
EU’s excessive deficit procedure
The EU Council has officially placed Hungary, Poland, and Slovakia under the excessive deficit procedure, along with Belgium, France, Italy, and Malta, due to fiscal deficits exceeding 3% of GDP with no quick reduction in sight. Poland’s deficit surpassed 5% of GDP last year and is expected to be similar this year.
Polish Finance Minister Andrzej Domański argues that being placed under the EU procedure does not necessitate state spending cuts. He anticipates the deficit will naturally reduce through faster economic growth and increased tax revenues. Poland’s stance in discussions with the European Commission, which have unofficially begun and will officially start soon, will focus on reducing the fiscal deficit below 3% of GDP.
The Commission will issue recommendations in November, which must be approved by the EU Council. These talks will clarify how Poland’s defense spending will be treated in deficit calculations and whether spending cuts are necessary.
Challenges for Polish businesses
Despite hopes for economic growth, Polish businesses face deteriorating conditions that could hinder investments. Economists from Polish lender Pekao SA report declining profitability across most sectors except a few services. In the first quarter, net profitability in companies with at least 50 employees fell below 3%, the lowest since 2009, excluding the pandemic year of 2020.
Cautious consumer behavior and weak foreign demand, crucial for exporters, are reducing company revenues. Concurrently, costs, particularly wages, are rising. While businesses can temporarily operate under these conditions, they may soon need to pass costs to consumers through price hikes or cut expenses, potentially leading to reduced investments and increased layoffs. Lower investments and consumption will slow GDP growth.
Unemployment in Poland
However, unemployment in Poland is decreasing. The official unemployment rate fell below 5% for the first time, now at a record low of 4.9%, according to the Polish statistics office GUS.
Survey data from the International Labour Organization suggests actual unemployment is around 3%, among the lowest globally. This declining rate, along with demographic trends, indicates a strong job market for workers but growing challenges for employers in finding new employees. Unemployment rates in cities like Katowice (1%), Poznań (1.1%), and Warsaw (1.4%) are particularly low.
Currently, 762,000 people are registered as unemployed, down by over 14,000 from May and over 21,000 from last year. This decline is driven by the expanding economy absorbing more workers and demographic factors reducing the overall labor force, thereby lowering the unemployment rate.
The Polish government plans to implement an EU directive aimed at increasing gender equality in the selection process for executive positions in large, publicly listed companies. Under the directive, 33% of all positions on the management and supervisory boards of these companies must be held by women.
However, this does not mean that skills and qualifications will be disregarded. Women will be given priority for positions only if the candidates have equal qualifications. The law will not allow a less qualified woman to take a position over a more qualified man.
Companies will be required to publish annual reports on gender balance within their management and supervisory boards. The Financial Supervision Authority (KNF) will have the authority to impose fines of up to 10% of annual revenues for non-compliance.
These rules will not apply to smaller companies with fewer than 250 employees, annual revenues below 50 million euros, or assets not exceeding 43 million euros.
The regulations are set to come into effect in July 2026 for most companies, and January 2026 for state-owned companies, pending the passage of the necessary legislation by the lower house of parliament. Currently, the government is only in the planning stage of drafting this bill.
Weak quarterly performance for Biedronka
The popular supermarket chain Biedronka, owned by Portuguese company Jeronimo Martins, has reported its weakest quarterly results in years, reflecting potential slowdowns in the Polish economy, particularly among consumers. Recent months have shown weak retail sales data, and Biedronka’s results further confirm this trend.
Notably, like-for-like sales, which compare sales from stores open for at least a year, saw a rare 4.6% decline. Overall network sales, including new stores, grew by only 0.1% in Polish złoty terms. EBITDA operating profit dropped by 16%, and the EBITDA margin fell to 7.6% from 8.5% last year.
This decline can partly be attributed to the Easter calendar shift, with the religious holiday falling in April last year and March this year. However, the company also cites falling food prices and intensified market competition in Poland. Rising costs, especially wages, are also impacting the business.
Jeronimo Martins warns that subsequent quarters may be similar unless consumer demand improves in Poland. The company expects an even larger margin drop in the second half of the year. CFO Ana Luisa Virginia said: "We know that Polish consumers are rational and price-sensitive. If we don't offer good prices, we will lose customers, and it will take a lot of money to win them back."
Following these results, Jeronimo Martins' shares plummeted by 16.6% on the Lisbon stock exchange, with an additional 4% drop the next day, reaching their lowest point since July 2021.
This bleak outlook also affected other market players. Shares in Polish retailer Dino fell by 9.2% on the Warsaw bourse, hitting their lowest since October last year. Meanwhile, shares in Eurocash, owner of Polish brands like Delikatesy Centrum and Lewiatan, dropped by over 8%, the lowest since October 2022. Investors are skeptical that these companies' results will differ significantly from those of Biedronka.
Inflation and monetary policies in Ukraine and Russia
Ukraine, defending against Russian aggression, is also battling rising inflation, a problem shared by Russia. Both countries recently tightened their monetary policies to curb inflation, likely cooling their economic activities. Ukraine, which had been lowering interest rates in recent months, halted this trend, with the main rate now at 13%. In Russia, the rate was increased by 200 basis points to 18%, nearing levels seen after Russia's 2022 invasion of Ukraine. This hike is in response to rising inflation, now at 9%, rather than currency depreciation.
In Ukraine, inflation recently fell below 4% but now stands at 4.8%, with year-end projections around 8.5%. In Russia, forecasts predict 7% inflation by year-end. Ukraine's inflation is driven by energy prices and a weakening of Ukraine’s hryvnia currency, similar to trends in Central Europe. In Russia, the central bank attributes inflation to an overheated economy with demand outpacing supply, labor shortages due to the war, and international sanctions.
Russian central banker Elvira Nabiullina warned of potential stagflation in Russia, a combination of economic slowdown and persistent high inflation, with deep recession being the only escape. Ukraine’s fiscal situation is dire, with a budget deficit of 23% of GDP this year, expected to fall to 18% next year, largely funded by foreign aid amounting to USD 38 billion this year and at least USD 31 billion next year.
Hungary’s economic slowdown
In contrast, Hungary’s economy is cooling, prompting a central bank decision to cut interest rates. Hungary’s inflation is not a current issue, but economic growth is slowing. The government reduced its GDP growth forecast to 2.2–2.3% for this year, down from 2.5%. Economic growth was 1.1% in the first quarter, the best in nearly two years.
Economy Minister Márton Nagy stated that growth might reach 4% next year if export markets recover and the government implements demand-stimulating programs. However, Hungary's inclusion in the EU's excessive deficit procedure limits its ability to increase government spending.
EU’s excessive deficit procedure
The EU Council has officially placed Hungary, Poland, and Slovakia under the excessive deficit procedure, along with Belgium, France, Italy, and Malta, due to fiscal deficits exceeding 3% of GDP with no quick reduction in sight. Poland’s deficit surpassed 5% of GDP last year and is expected to be similar this year.
Polish Finance Minister Andrzej Domański argues that being placed under the EU procedure does not necessitate state spending cuts. He anticipates the deficit will naturally reduce through faster economic growth and increased tax revenues. Poland’s stance in discussions with the European Commission, which have unofficially begun and will officially start soon, will focus on reducing the fiscal deficit below 3% of GDP.
The Commission will issue recommendations in November, which must be approved by the EU Council. These talks will clarify how Poland’s defense spending will be treated in deficit calculations and whether spending cuts are necessary.
Challenges for Polish businesses
Despite hopes for economic growth, Polish businesses face deteriorating conditions that could hinder investments. Economists from Polish lender Pekao SA report declining profitability across most sectors except a few services. In the first quarter, net profitability in companies with at least 50 employees fell below 3%, the lowest since 2009, excluding the pandemic year of 2020.
Cautious consumer behavior and weak foreign demand, crucial for exporters, are reducing company revenues. Concurrently, costs, particularly wages, are rising. While businesses can temporarily operate under these conditions, they may soon need to pass costs to consumers through price hikes or cut expenses, potentially leading to reduced investments and increased layoffs. Lower investments and consumption will slow GDP growth.
Unemployment in Poland
However, unemployment in Poland is decreasing. The official unemployment rate fell below 5% for the first time, now at a record low of 4.9%, according to the Polish statistics office GUS.
Survey data from the International Labour Organization suggests actual unemployment is around 3%, among the lowest globally. This declining rate, along with demographic trends, indicates a strong job market for workers but growing challenges for employers in finding new employees. Unemployment rates in cities like Katowice (1%), Poznań (1.1%), and Warsaw (1.4%) are particularly low.
Currently, 762,000 people are registered as unemployed, down by over 14,000 from May and over 21,000 from last year. This decline is driven by the expanding economy absorbing more workers and demographic factors reducing the overall labor force, thereby lowering the unemployment rate.
Source: TVP World
