Polish Zloty Soars on Strong Data, Fails to Sustain Gains Due to Fiscal Risks
The Polish Zloty strengthened against the Euro as domestic bonds sold off following August's inflation and second-quarter GDP data, which exceeded expectations. According to Societe Generale, the zloty firmed up due to these supportive macroeconomic indicators, with the EUR/PLN rate retreating below 4.33 from its previous high of 4.35.
Poland's August inflation rate hit a 14-month high of 3.4%, while final second-quarter GDP was revised up to 1.0% quarter-over-quarter and 3.9% year-over-year, respectively. The data led to an increase in the 10-year POLGB yield above 6.0% for the first time since January 2025.
The government's draft budget for 2027 projects a fiscal deficit of 7.1% of GDP, slightly higher than expected, and includes a tax overhaul aimed at easing the burden on middle-income households through increased corporate taxation. This move has raised concerns among rating agencies about potential risks to credit ratings and borrowing costs.
Prime Minister Tusk argued that keeping the deficit below 7% would come at the expense of economic growth, citing previous warnings from rating agencies about the absence of a credible fiscal consolidation plan.