Financial markets defied expectations during the first week of Donald Trump’s presidency, as the Polish złoty and other Central European currencies rallied sharply against the U.S. dollar, easing inflationary pressures and sparking optimism across the region.
The first week under the Trump was expected to be turbulent for global financial markets, and it certainly delivered – just not in the anticipated way. Contrary to forecasts, the złoty and other Central European currencies, such as the Hungarian forint and Czech koruna, experienced a strong rally.
The U.S. dollar, which had surged to PLN 4.15 (€0.92) in Poland at the start of last week, fell back to PLN 4.00 (€0.88) within days, marking a 3% appreciation for regional currencies against the dollar.
The złoty’s newfound strength also drove the euro’s value down to around PLN 4.20 (€0.92) – the first time it’s reached this level since 2018. A key turning point was the revelation that President Trump, despite his campaign rhetoric, did not immediately impose steep tariffs on imports to the U.S. Financial markets, buoyed by this restraint, saw stock exchanges in Europe and the U.S. hitting record highs.
Trump’s tariff threats remain on the table, with targets including the EU, Canada, Mexico, and notably Russia. However, there’s growing sentiment that these threats are strategic bargaining chips rather than policy goals, aimed at leveraging concessions on issues Trump prioritises. For Poland and the wider region, Trump’s stance on Russia is particularly consequential, especially if tariff threats compel Russia to seek an end to the conflict in Ukraine. This geopolitical outlook is lending support to Central European currencies.
Globally, much hinges on the U.S.-China dynamic. Instead of aggressive trade measures, Trump’s early communications have hinted at the possibility of reaching a new accord with China, which has further soothed market anxieties. Despite Trump’s controversial domestic decisions – like pardoning individuals convicted of storming the U.S. Senate four years ago – his economic approach has been less combative than anticipated, sparking optimism in financial circles.
For Polish consumers, a stronger złoty means more affordable imports, potentially easing inflationary pressures. It also means cheaper winter holidays, whether in the Alps or Slovakia – a timely boon as the ski season peaks.
Economic data for December painted a lacklustre picture of Poland’s economy, with little sign of a rebound. Consumer sentiment improved slightly, but this optimism hasn’t translated into a significant boost in retail activity – sales were up just 1.9% year-on-year, falling short of economists’ expectations. Employment figures also disappointed, with a reduction of 9,000 jobs in December alone, bringing the total decline to 62,000 for the year.
The U.S. dollar, which had surged to PLN 4.15 (€0.92) in Poland at the start of last week, fell back to PLN 4.00 (€0.88) within days, marking a 3% appreciation for regional currencies against the dollar.
The złoty’s newfound strength also drove the euro’s value down to around PLN 4.20 (€0.92) – the first time it’s reached this level since 2018. A key turning point was the revelation that President Trump, despite his campaign rhetoric, did not immediately impose steep tariffs on imports to the U.S. Financial markets, buoyed by this restraint, saw stock exchanges in Europe and the U.S. hitting record highs.
Trump’s tariff threats remain on the table, with targets including the EU, Canada, Mexico, and notably Russia. However, there’s growing sentiment that these threats are strategic bargaining chips rather than policy goals, aimed at leveraging concessions on issues Trump prioritises. For Poland and the wider region, Trump’s stance on Russia is particularly consequential, especially if tariff threats compel Russia to seek an end to the conflict in Ukraine. This geopolitical outlook is lending support to Central European currencies.
Globally, much hinges on the U.S.-China dynamic. Instead of aggressive trade measures, Trump’s early communications have hinted at the possibility of reaching a new accord with China, which has further soothed market anxieties. Despite Trump’s controversial domestic decisions – like pardoning individuals convicted of storming the U.S. Senate four years ago – his economic approach has been less combative than anticipated, sparking optimism in financial circles.
For Polish consumers, a stronger złoty means more affordable imports, potentially easing inflationary pressures. It also means cheaper winter holidays, whether in the Alps or Slovakia – a timely boon as the ski season peaks.
Poland’s economic performance stagnates as 2024 ends
Economic data for December painted a lacklustre picture of Poland’s economy, with little sign of a rebound. Consumer sentiment improved slightly, but this optimism hasn’t translated into a significant boost in retail activity – sales were up just 1.9% year-on-year, falling short of economists’ expectations. Employment figures also disappointed, with a reduction of 9,000 jobs in December alone, bringing the total decline to 62,000 for the year.
While average wages continued to rise – up 9.8% from the previous year – this increase is more a reflection of demographic shifts, with a shrinking working-age population, than a signal of economic vitality or business confidence. Notably, this was the first time in a year that wage growth dipped below 10%. Nevertheless, with inflation under 5%, real wage growth in Poland remains robust, exceeding 5%.
Industrial production also underwhelmed, growing a mere 0.2% year-on-year in December, while construction output fell by 8%. Though the latter was slightly better than the bleak forecasts, it marked the twelfth consecutive month of contraction in the sector.
While Poland’s retail food prices remained stable in December, contributing to annual inflation staying below 5%, wholesale markets told a different story. According to the Central Statistical Office (GUS), wholesale food prices surged by 4.7% in December compared to November, marking the sharpest monthly increase since April 2022. On a year-on-year basis, wholesale food prices have risen nearly 10%, the fastest pace since March 2023.
Key commodities driving this trend include grain, which jumped by 8% in December, and milk, which surged by 11%. Wheat and poultry prices were relatively stable, while pork prices declined slightly. However, wheat remains at its highest price level in 18 months.
Although wholesale price trends do not immediately translate to retail prices, history suggests that shifts in the wholesale market often ripple through to shop shelves with a delay. This raises concerns about potential inflationary pressures in the coming months, complicating Poland's efforts to stabilise prices further.
December brought little change to Poland’s housing market, with 21,000 homes completed, nearly matching figures from the previous year. However, new construction has fallen sharply, with only 12,600 units started – a 13% decline compared to December 2023. For all of 2024, construction began on 234,000 new homes, with over 152,000 attributed to developers. This marked a significant departure from previous years when developers typically initiated 110,000–115,000 projects annually. The unprecedented increase in housing starts last year was fuelled by a government-backed mortgage subsidy programme, which drove record-breaking demand for property.
However, this surge is unlikely to repeat. The Polish Association of Developers predicts a sharp pullback in 2025, with housing starts expected to drop to around 125,000 units. Developers are scaling back projects in response to falling demand, driven by persistently high interest rates. These elevated rates have made mortgages prohibitively expensive for many prospective buyers, stifling activity in the housing market. In contrast to 2024’s frenzy, the current environment is shaping up to be far more subdued.
Industrial production also underwhelmed, growing a mere 0.2% year-on-year in December, while construction output fell by 8%. Though the latter was slightly better than the bleak forecasts, it marked the twelfth consecutive month of contraction in the sector.
Food prices stable in shops but surge in wholesale markets
While Poland’s retail food prices remained stable in December, contributing to annual inflation staying below 5%, wholesale markets told a different story. According to the Central Statistical Office (GUS), wholesale food prices surged by 4.7% in December compared to November, marking the sharpest monthly increase since April 2022. On a year-on-year basis, wholesale food prices have risen nearly 10%, the fastest pace since March 2023.
Key commodities driving this trend include grain, which jumped by 8% in December, and milk, which surged by 11%. Wheat and poultry prices were relatively stable, while pork prices declined slightly. However, wheat remains at its highest price level in 18 months.
Although wholesale price trends do not immediately translate to retail prices, history suggests that shifts in the wholesale market often ripple through to shop shelves with a delay. This raises concerns about potential inflationary pressures in the coming months, complicating Poland's efforts to stabilise prices further.
Housing market stabilises amid declining demand
December brought little change to Poland’s housing market, with 21,000 homes completed, nearly matching figures from the previous year. However, new construction has fallen sharply, with only 12,600 units started – a 13% decline compared to December 2023. For all of 2024, construction began on 234,000 new homes, with over 152,000 attributed to developers. This marked a significant departure from previous years when developers typically initiated 110,000–115,000 projects annually. The unprecedented increase in housing starts last year was fuelled by a government-backed mortgage subsidy programme, which drove record-breaking demand for property.
However, this surge is unlikely to repeat. The Polish Association of Developers predicts a sharp pullback in 2025, with housing starts expected to drop to around 125,000 units. Developers are scaling back projects in response to falling demand, driven by persistently high interest rates. These elevated rates have made mortgages prohibitively expensive for many prospective buyers, stifling activity in the housing market. In contrast to 2024’s frenzy, the current environment is shaping up to be far more subdued.
In addition to high borrowing costs, easing inflationary pressures have made property a less attractive investment vehicle. Last year, many turned to housing as a hedge against inflation, but with price growth now stabilising, demand has softened further. According to the Polish Association of Developers, the weaker demand environment will likely keep supply constrained as developers pull back on new projects. This cautious approach, while helping to prevent sharp declines in property prices, risks prolonging the affordability crisis in the housing sector.
By limiting supply, developers are aiming to stabilise prices, making sharp corrections unlikely. However, this strategy may lead to stagnation in the market, with affordability challenges persisting for first-time buyers and middle-income families. While the market has avoided significant price drops for now, the broader economic environment could still weigh on both supply and demand, shaping a slower and more cautious housing market in the year ahead.
Poland has exhausted its fiscal room to manoeuvre after three years of heightened budgetary strain, according to a recent report from Fitch Ratings. The agency cautioned that if another economic crisis were to hit, the government would likely need to implement substantial budget cuts to manage the fallout. Unlike during past downturns, when fiscal stimulus measures were a viable option, Poland’s ability to increase government spending or run larger deficits is now severely constrained. The country’s deficit is already elevated, leaving little room for additional borrowing.
Fitch’s assessment highlights that this challenge isn’t unique to Poland. Other Central and Eastern European countries also face limited fiscal flexibility. Nevertheless, Poland’s situation remains particularly precarious. In December, Fitch revised its 2025 GDP growth forecast for Poland downward, from 3.6% to 3.4%. This adjustment reflects the ongoing weakness in Germany, Poland’s largest trading partner, which has struggled with sluggish growth and reduced export activity.
The path to fiscal recovery in Poland will hinge on sustained economic growth. Fitch emphasised that achieving this will be essential for reducing the excessive budget deficit and maintaining fiscal stability. However, several risks threaten to derail these efforts. Political uncertainty looms large, with presidential elections scheduled for this year and parliamentary elections less than three years away. Fitch also highlighted geopolitical risks tied to the war in Ukraine, which continues to weigh on regional stability.
By limiting supply, developers are aiming to stabilise prices, making sharp corrections unlikely. However, this strategy may lead to stagnation in the market, with affordability challenges persisting for first-time buyers and middle-income families. While the market has avoided significant price drops for now, the broader economic environment could still weigh on both supply and demand, shaping a slower and more cautious housing market in the year ahead.
Fitch warns of limited fiscal flexibility for Poland
Poland has exhausted its fiscal room to manoeuvre after three years of heightened budgetary strain, according to a recent report from Fitch Ratings. The agency cautioned that if another economic crisis were to hit, the government would likely need to implement substantial budget cuts to manage the fallout. Unlike during past downturns, when fiscal stimulus measures were a viable option, Poland’s ability to increase government spending or run larger deficits is now severely constrained. The country’s deficit is already elevated, leaving little room for additional borrowing.
Fitch’s assessment highlights that this challenge isn’t unique to Poland. Other Central and Eastern European countries also face limited fiscal flexibility. Nevertheless, Poland’s situation remains particularly precarious. In December, Fitch revised its 2025 GDP growth forecast for Poland downward, from 3.6% to 3.4%. This adjustment reflects the ongoing weakness in Germany, Poland’s largest trading partner, which has struggled with sluggish growth and reduced export activity.
The path to fiscal recovery in Poland will hinge on sustained economic growth. Fitch emphasised that achieving this will be essential for reducing the excessive budget deficit and maintaining fiscal stability. However, several risks threaten to derail these efforts. Political uncertainty looms large, with presidential elections scheduled for this year and parliamentary elections less than three years away. Fitch also highlighted geopolitical risks tied to the war in Ukraine, which continues to weigh on regional stability.
Other challenges include weak consumer and business sentiment, rising labor costs, declining cost competitiveness, persistently high energy prices, and ongoing labor shortages. These factors, combined with a constrained fiscal environment, make navigating the coming years increasingly complex for Poland’s policymakers.
Fitch’s concerns about Poland are part of a broader trend affecting Central and Eastern Europe. Several countries in the region face similar constraints, with limited fiscal room and increasing sensitivity to external shocks. Sluggish economic activity in the eurozone – particularly in Germany – and ongoing geopolitical tensions have created a challenging environment for many economies in the region.
Fitch downgraded growth projections for several Central and Eastern European nations in December, citing these overlapping risks. For Poland, growth is expected to moderate, but its relatively strong domestic demand and diversified economy offer some resilience. However, even these strengths may not be enough to shield the country from external pressures fully. With fiscal flexibility significantly reduced across the region, governments will need to focus on careful budgetary management to maintain stability. The ability to respond effectively to future crises will require balancing growth-supporting policies with fiscal discipline. For Poland and its neighbours, sustaining investor confidence and fostering economic resilience will remain key priorities in navigating an increasingly uncertain global environment.
Central Europe cannot yet expect a swift economic turnaround in Germany, but recent data suggests some tentative signs of improvement. The preliminary Purchasing Managers' Index (PMI) for German manufacturing exceeded expectations, rising from 42.5 points in December to 44.1 points in January. Analysts had anticipated a modest increase to just 42.7 points. While the index remains below the 50-point threshold that signals growth, the upward trend indicates a narrowing gap between firms reporting declining orders or production and those reporting growth. This marks the third-best PMI reading for German manufacturing in the past 18 months.
In services, the German PMI delivered a more optimistic picture, climbing to 52.5 points from a lower base, indicating robust expansion. This was the best reading since July, bolstered by a return to hiring among service providers and growing optimism for the months ahead. According to S&P Global, which compiles the PMI, the improved outlook may partly reflect anticipation of February’s snap parliamentary elections. Polls suggest a likely return to power for the centre-right CDU party, which enjoys stronger support from big business than the current left-leaning coalition.
Warsaw is gearing up for its first major stock market debut of the year with diagnostics leader Diagnostyka launching its IPO. The company operates over 1,000 owned and 7,000 partner blood collection points, 156 diagnostic laboratories, and 19 imaging diagnostic facilities. With a portfolio of 4,000 types of tests ranging from basic screenings to advanced specialist diagnostics, Diagnostyka is the clear market leader in Poland.
In the first three quarters of 2024, the company reported nearly PLN 1.5 billion (€321 million) in revenue and €37.7 million in net profit. The IPO will see Mid Europa, a private equity fund and one of Diagnostyka’s co-owners, sell over 16 million shares. However, the company’s founders will retain majority voting control. Shares are priced at €22.50 each, valuing the offering at €364 million.
Retail investors can apply for shares until January 30, followed by subscriptions for institutional investors. The IPO’s success will depend heavily on institutional demand. October’s high-profile IPO of Żabka proved successful, but Croatian supermarket chain Studenac’s attempted listing shortly after failed due to weak market sentiment. Diagnostyka’s offering comes amid a more favourable global market environment. If all goes well, shares will be allocated to buyers on February 5, with trading on the Warsaw Stock Exchange starting on February 7.
Regional challenges reflect broader economic uncertainty
Fitch’s concerns about Poland are part of a broader trend affecting Central and Eastern Europe. Several countries in the region face similar constraints, with limited fiscal room and increasing sensitivity to external shocks. Sluggish economic activity in the eurozone – particularly in Germany – and ongoing geopolitical tensions have created a challenging environment for many economies in the region.
Fitch downgraded growth projections for several Central and Eastern European nations in December, citing these overlapping risks. For Poland, growth is expected to moderate, but its relatively strong domestic demand and diversified economy offer some resilience. However, even these strengths may not be enough to shield the country from external pressures fully. With fiscal flexibility significantly reduced across the region, governments will need to focus on careful budgetary management to maintain stability. The ability to respond effectively to future crises will require balancing growth-supporting policies with fiscal discipline. For Poland and its neighbours, sustaining investor confidence and fostering economic resilience will remain key priorities in navigating an increasingly uncertain global environment.
Slight economic improvements in Germany offer glimmers of hope for Central Europe
Central Europe cannot yet expect a swift economic turnaround in Germany, but recent data suggests some tentative signs of improvement. The preliminary Purchasing Managers' Index (PMI) for German manufacturing exceeded expectations, rising from 42.5 points in December to 44.1 points in January. Analysts had anticipated a modest increase to just 42.7 points. While the index remains below the 50-point threshold that signals growth, the upward trend indicates a narrowing gap between firms reporting declining orders or production and those reporting growth. This marks the third-best PMI reading for German manufacturing in the past 18 months.
In services, the German PMI delivered a more optimistic picture, climbing to 52.5 points from a lower base, indicating robust expansion. This was the best reading since July, bolstered by a return to hiring among service providers and growing optimism for the months ahead. According to S&P Global, which compiles the PMI, the improved outlook may partly reflect anticipation of February’s snap parliamentary elections. Polls suggest a likely return to power for the centre-right CDU party, which enjoys stronger support from big business than the current left-leaning coalition.
Major IPO set to energise Warsaw Stock Exchange
Warsaw is gearing up for its first major stock market debut of the year with diagnostics leader Diagnostyka launching its IPO. The company operates over 1,000 owned and 7,000 partner blood collection points, 156 diagnostic laboratories, and 19 imaging diagnostic facilities. With a portfolio of 4,000 types of tests ranging from basic screenings to advanced specialist diagnostics, Diagnostyka is the clear market leader in Poland.
In the first three quarters of 2024, the company reported nearly PLN 1.5 billion (€321 million) in revenue and €37.7 million in net profit. The IPO will see Mid Europa, a private equity fund and one of Diagnostyka’s co-owners, sell over 16 million shares. However, the company’s founders will retain majority voting control. Shares are priced at €22.50 each, valuing the offering at €364 million.
Retail investors can apply for shares until January 30, followed by subscriptions for institutional investors. The IPO’s success will depend heavily on institutional demand. October’s high-profile IPO of Żabka proved successful, but Croatian supermarket chain Studenac’s attempted listing shortly after failed due to weak market sentiment. Diagnostyka’s offering comes amid a more favourable global market environment. If all goes well, shares will be allocated to buyers on February 5, with trading on the Warsaw Stock Exchange starting on February 7.
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