Poland’s December inflation figures surprised economists by remaining flat, despite spike in butter prices.
In December, Poland’s inflation rate remained unchanged at 4.7%, defying predictions of a rise to 5%. Core inflation, which excludes volatile food and energy prices, fell to 4%, indicating a broader easing of price pressures.
This stability came despite public alarm over rising butter prices, which increased by over 5% in December and were 27% higher than a year ago. Other goods, however, saw price declines, such as sugar (-7%), poultry (-2%), shoes (-4%) and alcohol (-1%). These offsets kept overall inflation in check.
Economists anticipate a slight uptick in inflation during early 2025, driven by potential energy price adjustments, but expect it to decline to around 3.5% by year-end. However, as the December data highlights, inflation forecasting remains inherently uncertain.
Inflation trends varied across the region. In the Czech Republic, annual inflation rose from 2.8% to 3%, although monthly prices dropped by 0.3%. Slovakia saw its inflation rate fall to 2.9%, with a 0.4% month-on-month decline. Hungary experienced a sharp jump, with inflation rising from 3.7% to 4.6% in December, surpassing expectations and reaching its highest level in a year.
These figures underline the contrasting economic challenges faced by Central European nations as they grapple with inflationary pressures and regional instability.
This stability came despite public alarm over rising butter prices, which increased by over 5% in December and were 27% higher than a year ago. Other goods, however, saw price declines, such as sugar (-7%), poultry (-2%), shoes (-4%) and alcohol (-1%). These offsets kept overall inflation in check.
Economists anticipate a slight uptick in inflation during early 2025, driven by potential energy price adjustments, but expect it to decline to around 3.5% by year-end. However, as the December data highlights, inflation forecasting remains inherently uncertain.
Central Europe: diverging inflation trends
Inflation trends varied across the region. In the Czech Republic, annual inflation rose from 2.8% to 3%, although monthly prices dropped by 0.3%. Slovakia saw its inflation rate fall to 2.9%, with a 0.4% month-on-month decline. Hungary experienced a sharp jump, with inflation rising from 3.7% to 4.6% in December, surpassing expectations and reaching its highest level in a year.
These figures underline the contrasting economic challenges faced by Central European nations as they grapple with inflationary pressures and regional instability.
Poland’s pension system faces mounting strain
Demographic changes are placing growing pressure on Poland’s pension system. By 2029, the working-age population is projected to decline by 610,000, reducing the number of contributors to the pension fund by 236,000 (-1.4%). Simultaneously, the number of retirees is expected to grow by 350,000, pushing those aged 65+ to over 25% of the population.
Despite rising wages supporting pension contributions, payouts are set to increase even faster due to annual inflation-linked adjustments and the expanding retiree base. This imbalance is forecast to widen the Social Insurance Fund (FUS) deficit from PLN 80 billion (€17 billion) in 2024 to over €25 billion by 2029, rising from 2.2% to 2.8% of GDP.
Poland’s total population is expected to shrink from 37.47 million to 36.57 million by 2029. Migration from Ukraine has partially offset these trends, with many refugees contributing to the pension system. However, their long-term presence remains uncertain, as many may return home after the war.
Polish businesses are increasingly targeted by ransomware attacks, with incidents rising by 37% in the second half of 2024 compared to the first half. This has pushed Poland to seventh place globally for ransomware prevalence, according to a report by cybersecurity firm ESET. Countries with active conflicts, like the U.S., Russia, China and Ukraine, accounted for over 30% of such attacks worldwide, while Poland represented 4%.
Alarmingly, 52% of Polish employees have not received cybersecurity training in the past five years, despite 88% of firms reporting data breaches or cyberattacks during that period. Only 19% of employees understand ransomware, highlighting the urgent need for awareness and training programs.
Despite rising wages supporting pension contributions, payouts are set to increase even faster due to annual inflation-linked adjustments and the expanding retiree base. This imbalance is forecast to widen the Social Insurance Fund (FUS) deficit from PLN 80 billion (€17 billion) in 2024 to over €25 billion by 2029, rising from 2.2% to 2.8% of GDP.
Poland’s total population is expected to shrink from 37.47 million to 36.57 million by 2029. Migration from Ukraine has partially offset these trends, with many refugees contributing to the pension system. However, their long-term presence remains uncertain, as many may return home after the war.
Poland sees surge in ransomware attacks
Polish businesses are increasingly targeted by ransomware attacks, with incidents rising by 37% in the second half of 2024 compared to the first half. This has pushed Poland to seventh place globally for ransomware prevalence, according to a report by cybersecurity firm ESET. Countries with active conflicts, like the U.S., Russia, China and Ukraine, accounted for over 30% of such attacks worldwide, while Poland represented 4%.
Alarmingly, 52% of Polish employees have not received cybersecurity training in the past five years, despite 88% of firms reporting data breaches or cyberattacks during that period. Only 19% of employees understand ransomware, highlighting the urgent need for awareness and training programs.
IMF and World Bank adjust Polish growth forecasts
The IMF and World Bank have slightly downgraded their growth projections for Poland. The World Bank now expects GDP growth of 3.4% in 2025 and 3.2% in 2026, down from earlier estimates of 3.7% and 3.4%, respectively. The IMF remains slightly more optimistic, forecasting growth of 3.5% in 2025 and 3.3% in 2026.
Globally, the IMF predicts growth of 3.3% in both years. The U.S. is projected to expand by 2.7% in 2025, while China is expected to grow by 4.6%. The Eurozone lags with an anticipated 1% growth rate, with Germany contributing a modest 0.3%.
For the first time since 2019, Poland has reintroduced treasury bills (T-bills), a short-term debt instrument maturing within a year. These instruments are typically used during economic crises, such as the COVID-19 pandemic. Deputy Finance Minister Jurand Drop stated that banks specifically requested T-bills to enhance market liquidity.
Economists suggest the move may also help Poland meet its 2025 borrowing target of over €110 billion. However, the first auction yielded mixed results: while demand exceeded €1.5 billion, only €1.2 billion was sold, below the planned €1.3 billion.
The T-bills carried a high yield of 5.45%, exceeding the 5.19% yield on two-year bonds sold days earlier. Analysts believe banks pushed for higher rates, leaving the government little choice but to comply.
Globally, the IMF predicts growth of 3.3% in both years. The U.S. is projected to expand by 2.7% in 2025, while China is expected to grow by 4.6%. The Eurozone lags with an anticipated 1% growth rate, with Germany contributing a modest 0.3%.
T-Bills return to Polish financial market
For the first time since 2019, Poland has reintroduced treasury bills (T-bills), a short-term debt instrument maturing within a year. These instruments are typically used during economic crises, such as the COVID-19 pandemic. Deputy Finance Minister Jurand Drop stated that banks specifically requested T-bills to enhance market liquidity.
Economists suggest the move may also help Poland meet its 2025 borrowing target of over €110 billion. However, the first auction yielded mixed results: while demand exceeded €1.5 billion, only €1.2 billion was sold, below the planned €1.3 billion.
The T-bills carried a high yield of 5.45%, exceeding the 5.19% yield on two-year bonds sold days earlier. Analysts believe banks pushed for higher rates, leaving the government little choice but to comply.
Prague Stock Exchange eyes revival
The Prague Stock Exchange, long marred by low activity, is poised for a potential revival with the anticipated IPO of Doosan Škoda Power, a Czech subsidiary of South Korea’s Doosan Enerbility. The company, which manufactures steam turbines for power plants, reported 2023 revenues of CZK 4.8 billion (€197 million) and a net profit of €23 million.
Despite low turnover, Prague’s main stock index gained 24% in 2024 and has risen 4.4% so far in 2025, reaching its highest level since November 2007. If successful, the Doosan IPO could rejuvenate the market, paving the way for further growth.
Brandywine Global, a $48-billion investment firm, has voiced concerns about Central European government bonds, citing risks from inflation, energy prices, and currency fluctuations. The Russia-Ukraine war continues to exacerbate these vulnerabilities. Political instability, including upcoming elections in Poland and the Czech Republic, adds to the uncertainty. Brandywine favors higher-yield markets like Turkey and Egypt, where 10-year bond yields reach 24% and 28%, compared to 6% in Poland and 7% in Hungary.
A wave of bond sell-offs at the start of 2025 pushed yields in Poland and Romania to their highest levels since 2023, highlighting the region's ongoing struggle to attract investment amidst rising global risks.
Despite low turnover, Prague’s main stock index gained 24% in 2024 and has risen 4.4% so far in 2025, reaching its highest level since November 2007. If successful, the Doosan IPO could rejuvenate the market, paving the way for further growth.
Central European bonds face investor skepticism
Brandywine Global, a $48-billion investment firm, has voiced concerns about Central European government bonds, citing risks from inflation, energy prices, and currency fluctuations. The Russia-Ukraine war continues to exacerbate these vulnerabilities. Political instability, including upcoming elections in Poland and the Czech Republic, adds to the uncertainty. Brandywine favors higher-yield markets like Turkey and Egypt, where 10-year bond yields reach 24% and 28%, compared to 6% in Poland and 7% in Hungary.
A wave of bond sell-offs at the start of 2025 pushed yields in Poland and Romania to their highest levels since 2023, highlighting the region's ongoing struggle to attract investment amidst rising global risks.
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