The US dollar has hit its lowest value in Poland in three years, as the Polish złoty strengthens amid global currency shifts, driven by expectations of US interest rate cuts and strong demand for Polish government bonds.
Meanwhile, Poland's economy shows resilience with positive employment trends and rising consumer credit, despite ongoing inflation challenges in Central Europe.
The US dollar is now at its lowest value against the Polish złoty in three years. Over the past week, its exchange rate fell by 0.1 złoty to 3.81 złoty. This decline is largely due to the weakening of the dollar globally, but it's also partly thanks to the recent strength of the Polish złoty. The dollar's depreciation on world markets is primarily driven by the anticipation of upcoming interest rate cuts in the United States, with the first expected to be decided by the Federal Reserve in September. Similarly, in the Czech and Hungarian markets, the dollar has also weakened, though not to the same extent as in Poland – it's only at its lowest since January of this year in those countries.
Meanwhile, the euro has been trading at around 4.26 złoty for the past few days. If its value drops by a few more groszy, it will reach its lowest level since 2020. The strength of the złoty against foreign currencies is also largely a matter of monetary policy. Unlike in the US and the Eurozone, where interest rate cuts are imminent, Poland's Monetary Policy Council has indicated that it may only start considering rate cuts next year. This suggests that in the coming months, the interest rate differential between Poland, the US, and the Eurozone will widen, which continues to bolster the złoty. In the past week, the złoty has also strengthened slightly against the Czech koruna and the Hungarian forint.
While a strong złoty may pose challenges for Polish exporters, as converting foreign sales revenues into złoty may now yield lower returns, it also brings benefits. The cost of importing goods from abroad has decreased, which could be particularly noticeable in the fuel market.
The combination of a cheaper dollar and the recent decline in oil, gasoline, and diesel prices offers hope for further reductions in fuel prices at Polish filling stations. Wholesale gasoline prices at Orlen, Poland's largest oil refiner, were recently the lowest since December of last year, while diesel prices were at their lowest since January 2022. According to Reflex, a Polish brokerage firm, the average retail price of diesel at filling stations is now the lowest since October of last year, and gasoline prices are at their lowest since January of this year.
Potential interest rate cuts in Poland likely in 2025
In recent months, remarks from members of Poland's Monetary Policy Council (RPP) about potential interest rate cuts in 2025 have sparked debate. These comments contrasted with statements made by the National Bank of Poland (NBP) President Adam Glapiński during his July press conference, where he said that rate cuts would not be likely until 2026. However, Glapiński has since softened his stance and aligned with other council members.
In a recent response to questions from PAP Biznes, Glapiński stated that "it cannot be ruled out that the economic situation may develop in such a way that discussions about adjusting monetary policy will be justified earlier than in 2026." He added that any potential rate cuts would depend on the RPP being confident that the peak of inflation is behind us and that future forecasts show a continued decline in inflation. This suggests that the likelihood of interest rate cuts in Poland as early as next year is increasing.
According to the NBP's latest inflation projection from July, inflation in Poland is expected to peak at 6.3% at the beginning of 2025, after which it is forecast to decline steadily and systematically, reaching 2.5% by the end of 2026.
Positive employment trends in Polish companies
Good news has also emerged from the Polish labor market. In July, employment in companies with at least 10 employees increased by 4,300 positions. While this change might seem modest, it marks the first increase in employment in Polish firms this year. From January to June, employment had been declining, with a total loss of 31,000 jobs. Employment also fell gradually in the second half of last year. The significant increase in employment in January was due to technical reasons, as the GUS (Central Statistical Office) makes an annual adjustment to the number of surveyed enterprises.
The last time employment in Polish companies grew as noticeably as it did now was in April of last year. However, it's too early to tell whether this represents a positive trend reversal, as July is typically a month when employment increases almost every year. The last exceptions to this pattern were in 2018 and, before that, in 2012.
The substantial increase in employment in July 2020 was related to the pandemic and the end of lockdowns, as many workers returned to their jobs after being placed on temporary leave during the previous months.
The US dollar is now at its lowest value against the Polish złoty in three years. Over the past week, its exchange rate fell by 0.1 złoty to 3.81 złoty. This decline is largely due to the weakening of the dollar globally, but it's also partly thanks to the recent strength of the Polish złoty. The dollar's depreciation on world markets is primarily driven by the anticipation of upcoming interest rate cuts in the United States, with the first expected to be decided by the Federal Reserve in September. Similarly, in the Czech and Hungarian markets, the dollar has also weakened, though not to the same extent as in Poland – it's only at its lowest since January of this year in those countries.
Meanwhile, the euro has been trading at around 4.26 złoty for the past few days. If its value drops by a few more groszy, it will reach its lowest level since 2020. The strength of the złoty against foreign currencies is also largely a matter of monetary policy. Unlike in the US and the Eurozone, where interest rate cuts are imminent, Poland's Monetary Policy Council has indicated that it may only start considering rate cuts next year. This suggests that in the coming months, the interest rate differential between Poland, the US, and the Eurozone will widen, which continues to bolster the złoty. In the past week, the złoty has also strengthened slightly against the Czech koruna and the Hungarian forint.
While a strong złoty may pose challenges for Polish exporters, as converting foreign sales revenues into złoty may now yield lower returns, it also brings benefits. The cost of importing goods from abroad has decreased, which could be particularly noticeable in the fuel market.
The combination of a cheaper dollar and the recent decline in oil, gasoline, and diesel prices offers hope for further reductions in fuel prices at Polish filling stations. Wholesale gasoline prices at Orlen, Poland's largest oil refiner, were recently the lowest since December of last year, while diesel prices were at their lowest since January 2022. According to Reflex, a Polish brokerage firm, the average retail price of diesel at filling stations is now the lowest since October of last year, and gasoline prices are at their lowest since January of this year.
Potential interest rate cuts in Poland likely in 2025
In recent months, remarks from members of Poland's Monetary Policy Council (RPP) about potential interest rate cuts in 2025 have sparked debate. These comments contrasted with statements made by the National Bank of Poland (NBP) President Adam Glapiński during his July press conference, where he said that rate cuts would not be likely until 2026. However, Glapiński has since softened his stance and aligned with other council members.
In a recent response to questions from PAP Biznes, Glapiński stated that "it cannot be ruled out that the economic situation may develop in such a way that discussions about adjusting monetary policy will be justified earlier than in 2026." He added that any potential rate cuts would depend on the RPP being confident that the peak of inflation is behind us and that future forecasts show a continued decline in inflation. This suggests that the likelihood of interest rate cuts in Poland as early as next year is increasing.
According to the NBP's latest inflation projection from July, inflation in Poland is expected to peak at 6.3% at the beginning of 2025, after which it is forecast to decline steadily and systematically, reaching 2.5% by the end of 2026.
Positive employment trends in Polish companies
Good news has also emerged from the Polish labor market. In July, employment in companies with at least 10 employees increased by 4,300 positions. While this change might seem modest, it marks the first increase in employment in Polish firms this year. From January to June, employment had been declining, with a total loss of 31,000 jobs. Employment also fell gradually in the second half of last year. The significant increase in employment in January was due to technical reasons, as the GUS (Central Statistical Office) makes an annual adjustment to the number of surveyed enterprises.
The last time employment in Polish companies grew as noticeably as it did now was in April of last year. However, it's too early to tell whether this represents a positive trend reversal, as July is typically a month when employment increases almost every year. The last exceptions to this pattern were in 2018 and, before that, in 2012.
The substantial increase in employment in July 2020 was related to the pandemic and the end of lockdowns, as many workers returned to their jobs after being placed on temporary leave during the previous months.
Strong demand for Polish government bonds reflects global trends
Typically, auctions where the Polish Finance Ministry sells new series of government bonds to large banks do not attract much excitement. However, given Poland's high budget deficit, it is crucial to monitor whether these auctions proceed as planned. Occasionally, global market disturbances can lead investors to shy away from purchasing bonds, resulting in lower demand and what might be considered an unsuccessful auction. This was the case in 2022, shortly after Russia's invasion of Ukraine.
This time, however, the situation was markedly different. At the auction held before the weekend, investors sought to purchase Polish bonds worth 18.5 billion złoty (€ 4.3 billion). This represented the highest demand at an auction in nearly six years, with the last higher demand recorded in October 2018. It's also noteworthy that the Finance Ministry aimed to sell bonds worth 9 billion złoty (€ 2.1 billion), meaning demand was more than double the offer – a situation not seen since January 2019.
The sudden surge in interest in Polish bonds aligns with a global trend and is linked to expectations of interest rate cuts by central banks. When rates are lower, bonds with typically fixed interest rates become relatively more attractive to investors.
Following the auction, the Finance Ministry announced that Poland's borrowing needs for this year – amounting to 449 billion złoty (€104.9 billion), required to finance the 2025 budget deficit and repay old debts – had already been covered by around 86%. This leaves about 63 billion złoty (€14.7 billion) still to be borrowed.
Inflation in Central Europe remains higher than in Western Europe
Central Europe continues to be a region where inflation tends to be higher than in Western Europe. According to new data from Eurostat, the inflation rate across the European Union reached 2.8% in July, up from 2.6% in June, marking the highest level since February.
Among the five EU countries with the highest inflation rates, four are from Central Europe: Romania (5.8%), Hungary (4.1%), Poland (4%), and Estonia (3.5%). Croatia (3.3%), Slovakia (3%), Austria (2.9%), and Bulgaria (2.8%) are also not far behind. In Western Europe, only Belgium (5.4%) and the Netherlands (3.5%) have inflation rates comparable to those in Central Europe.
Many economists attribute the phenomenon of higher inflation in Central Europe to several factors. These include the region's greater exposure to rising energy prices following Europe's disconnection from Russian gas in 2022, the resulting higher inflation expectations among the population, and the fact that Western Europe has been experiencing a more prolonged economic downturn, which acts as an anti-inflationary brake.
Typically, auctions where the Polish Finance Ministry sells new series of government bonds to large banks do not attract much excitement. However, given Poland's high budget deficit, it is crucial to monitor whether these auctions proceed as planned. Occasionally, global market disturbances can lead investors to shy away from purchasing bonds, resulting in lower demand and what might be considered an unsuccessful auction. This was the case in 2022, shortly after Russia's invasion of Ukraine.
This time, however, the situation was markedly different. At the auction held before the weekend, investors sought to purchase Polish bonds worth 18.5 billion złoty (€ 4.3 billion). This represented the highest demand at an auction in nearly six years, with the last higher demand recorded in October 2018. It's also noteworthy that the Finance Ministry aimed to sell bonds worth 9 billion złoty (€ 2.1 billion), meaning demand was more than double the offer – a situation not seen since January 2019.
The sudden surge in interest in Polish bonds aligns with a global trend and is linked to expectations of interest rate cuts by central banks. When rates are lower, bonds with typically fixed interest rates become relatively more attractive to investors.
Following the auction, the Finance Ministry announced that Poland's borrowing needs for this year – amounting to 449 billion złoty (€104.9 billion), required to finance the 2025 budget deficit and repay old debts – had already been covered by around 86%. This leaves about 63 billion złoty (€14.7 billion) still to be borrowed.
Inflation in Central Europe remains higher than in Western Europe
Central Europe continues to be a region where inflation tends to be higher than in Western Europe. According to new data from Eurostat, the inflation rate across the European Union reached 2.8% in July, up from 2.6% in June, marking the highest level since February.
Among the five EU countries with the highest inflation rates, four are from Central Europe: Romania (5.8%), Hungary (4.1%), Poland (4%), and Estonia (3.5%). Croatia (3.3%), Slovakia (3%), Austria (2.9%), and Bulgaria (2.8%) are also not far behind. In Western Europe, only Belgium (5.4%) and the Netherlands (3.5%) have inflation rates comparable to those in Central Europe.
Within our region, only the Czech Republic (2.5%), Slovenia (1.4%), Latvia (0.8%), and Lithuania (1.1%) have inflation rates below the EU average.Euro area annual #inflation at 2.6% in July 2024 https://t.co/JeInzNEIEZ pic.twitter.com/LKB05mIauI
— EU_Eurostat (@EU_Eurostat) August 20, 2024
Many economists attribute the phenomenon of higher inflation in Central Europe to several factors. These include the region's greater exposure to rising energy prices following Europe's disconnection from Russian gas in 2022, the resulting higher inflation expectations among the population, and the fact that Western Europe has been experiencing a more prolonged economic downturn, which acts as an anti-inflationary brake.
Orlen's stock declines despite strong operational performance
Orlen's stock fell by 1.6% on the Warsaw Stock Exchange last week, while the WIG 20 index lost 0.8% of its value during the same period. This means that Orlen underperformed slightly compared to the market average. Investors' reaction to the company's second-quarter financial results, which were just released, was relatively muted. This contrasts sharply with the active interest shown by politicians in Orlen's operations.
At first glance, Orlen's results could have generated significant emotions, as the company reported a net loss of 34 million złoty (€7.9 million), compared to a net profit of 6 billion złoty (€1.4 billion) a year ago. However, this loss can be easily explained by events beyond the company's control. A key factor was a 7.7 billion złoty (€1.8 billion) charge to the Price Difference Payment Fund, from which the government finances the system of freezing electricity and gas prices for households. Under this system, energy producers are entitled to compensation, a significant portion of which, by law, is financed by Orlen. Without this charge, the company would have reported better results than last year.
Operationally, the closely watched EBITDA LIFO profit, excluding losses related to these regulatory requirements, increased from 10.4 billion złoty (€2.4 billion) last year to 11.3 billion złoty (€2.6 billion) this year.
The adjusted results, stripped of one-off events, even exceeded analysts' expectations. However, the lack of a stronger reaction on the stock exchange was because Orlen had already announced the most important elements of its report over two weeks ago. At that time, Orlen's stock price rose by nearly 5% in response to these numbers.
Overall, however, the company has not performed well on the stock market this year. Since the beginning of January, its shares have fallen by 3.7%, while the WIG 20 has risen by 2.5% and the broader WIG index by 7.3%.
Consumer credit remains popular among Poles
In July, Polish consumers took out 16,600 new mortgage loans and over 364,000 cash loans. The latter are far more numerous, as they typically involve much smaller amounts. However, in total, the value of all mortgage loans in July reached 6.98 billion złoty (€1.63 billion), while cash loans amounted to 8.37 billion złoty (€1.96 billion). When we add 2.13 billion złoty (€497 million) in new installment loans, it becomes clear that Poles are currently much more inclined to finance consumer purchases in stores with loans than to buy properties on the real estate market.
Interestingly, the average value of a mortgage loan decreased slightly from June to July, from 421,700 złoty to 420,200 złoty (€98,200). This may indicate that housing prices have stopped rising, and might even be starting to decline. On an annual basis, compared to July 2023, the average value of a mortgage loan increased by 12.6%.
The average value of a cash loan is smaller but has been growing significantly in recent months, now approaching 23,000 złoty (€5,400).
According to Sławomir Nosal, head of the Business Intelligence Analysis Team at the Credit Information Bureau, "The main driver of sales in this segment was loans exceeding 50,000 złoty (€11,700 ). This may be due to increasing consumer needs, inflation, or greater availability of larger loans due to higher creditworthiness."
Orlen's stock fell by 1.6% on the Warsaw Stock Exchange last week, while the WIG 20 index lost 0.8% of its value during the same period. This means that Orlen underperformed slightly compared to the market average. Investors' reaction to the company's second-quarter financial results, which were just released, was relatively muted. This contrasts sharply with the active interest shown by politicians in Orlen's operations.
At first glance, Orlen's results could have generated significant emotions, as the company reported a net loss of 34 million złoty (€7.9 million), compared to a net profit of 6 billion złoty (€1.4 billion) a year ago. However, this loss can be easily explained by events beyond the company's control. A key factor was a 7.7 billion złoty (€1.8 billion) charge to the Price Difference Payment Fund, from which the government finances the system of freezing electricity and gas prices for households. Under this system, energy producers are entitled to compensation, a significant portion of which, by law, is financed by Orlen. Without this charge, the company would have reported better results than last year.
Operationally, the closely watched EBITDA LIFO profit, excluding losses related to these regulatory requirements, increased from 10.4 billion złoty (€2.4 billion) last year to 11.3 billion złoty (€2.6 billion) this year.
The adjusted results, stripped of one-off events, even exceeded analysts' expectations. However, the lack of a stronger reaction on the stock exchange was because Orlen had already announced the most important elements of its report over two weeks ago. At that time, Orlen's stock price rose by nearly 5% in response to these numbers.
Overall, however, the company has not performed well on the stock market this year. Since the beginning of January, its shares have fallen by 3.7%, while the WIG 20 has risen by 2.5% and the broader WIG index by 7.3%.
Consumer credit remains popular among Poles
In July, Polish consumers took out 16,600 new mortgage loans and over 364,000 cash loans. The latter are far more numerous, as they typically involve much smaller amounts. However, in total, the value of all mortgage loans in July reached 6.98 billion złoty (€1.63 billion), while cash loans amounted to 8.37 billion złoty (€1.96 billion). When we add 2.13 billion złoty (€497 million) in new installment loans, it becomes clear that Poles are currently much more inclined to finance consumer purchases in stores with loans than to buy properties on the real estate market.
Interestingly, the average value of a mortgage loan decreased slightly from June to July, from 421,700 złoty to 420,200 złoty (€98,200). This may indicate that housing prices have stopped rising, and might even be starting to decline. On an annual basis, compared to July 2023, the average value of a mortgage loan increased by 12.6%.
The average value of a cash loan is smaller but has been growing significantly in recent months, now approaching 23,000 złoty (€5,400).
According to Sławomir Nosal, head of the Business Intelligence Analysis Team at the Credit Information Bureau, "The main driver of sales in this segment was loans exceeding 50,000 złoty (€11,700 ). This may be due to increasing consumer needs, inflation, or greater availability of larger loans due to higher creditworthiness."
