During a recent press conference, Glapiński cited the Polish parliament’s decision to freeze electricity prices for households until September 2025 as a key factor. He argued that this measure postpones the anticipated inflation spike to late 2025, delaying any confidence in a sustained inflation decline until early 2026.
Glapiński’s position has sparked debate among economists, who view high interest rates as a barrier to economic recovery. Analysts from lender Pekao SA described current rate levels as “a stick in the spokes” of Poland’s economic revival, while private bank mBank warned that prolonged high rates could undermine the country’s competitiveness. Lower interest rates would ease the cost of borrowing, making mortgages more affordable and boosting credit availability, particularly in the struggling housing market.
Critics argue that Glapiński’s assumptions about electricity prices are flawed. Economists at Santander highlight that wholesale electricity prices have been steadily declining. In November, the average contract price for 2024 dropped to PLN 434 (€94) per megawatt-hour, a 10% decrease from six months prior. They contend that when electricity tariffs are reviewed in 2024, they may align with or even fall below the current frozen rates, potentially negating any inflationary impact.
Uncertainty in monetary policy
Adding to the confusion, Glapiński’s comments marked his fourth shift in interest rate expectations within six months. Initially, he projected cuts in 2026, only to later suggest adjustments could begin as early as March 2024, before again reverting to a 2026 timeline. This inconsistency has led to muted market reactions, with the Polish złoty and government bonds showing little movement following his latest remarks.
Notably, three members of the Monetary Policy Council (RPP) publicly disagreed with Glapiński. Each suggested that rate cuts could still be on the table for March 2024. However, the RPP operates on majority voting, and in the event of a tie, Glapiński’s vote carries decisive weight. For the council to override his stance, at least six of its nine members would need to vote against him.
Parliament’s role in shaping policy
The Polish parliament’s decision to extend the electricity price freeze reflects its broader economic implications, even if lawmakers may not have fully considered the monetary policy repercussions. The freeze caps household electricity prices through September 2025, while small and medium-sized businesses (SMEs) and local governments benefit from a freeze until March 2024. Deputy Climate Minister Miłosz Motyka hinted that further extensions could be implemented if necessary.
Wholesale electricity prices are already trending downward, with contracts for 2024 priced significantly below the €150 per megawatt-hour cap for SMEs. November’s average price of €94 represents a 20% year-on-year decrease. These lower prices may allow businesses to negotiate better deals without government intervention, although continued freezes remain an option if the market fails to deliver competitive rates.
A balancing act for policymakers
The ongoing interplay between energy price freezes and monetary policy underscores the complexity of managing Poland’s economic challenges. While extended freezes aim to shield households and businesses from rising costs, they also influence inflation expectations and monetary decisions. The NBP and policymakers must navigate these dynamics carefully, balancing short-term economic relief with the long-term goal of financial stability.
As discussions about rate cuts persist, the spotlight remains on how Poland’s energy policies and broader economic conditions will shape its monetary path in 2024.
Consumer concerns meet employer confidence
Despite rising concerns among Polish consumers about unemployment, a recent survey by Randstad suggests these fears may be unfounded. The data shows 28% of companies plan to increase employment in the coming months, while only 8% anticipate job cuts. Most firms (61%) intend to maintain current staffing levels. However, wage pressures persist, with 47% of businesses planning to increase salaries, albeit at a more modest pace than last year. Around 31% forecast raises of 4-7%, and 20% predict increases of 7-10%.
Holiday initiatives are also on the rise. Some 79% of employers will grant holiday bonuses, with nearly 40% budgeting more than €108 per employee. However, this figure often includes holiday events, where costs have risen due to inflation.
Economic growth forecasts: optimism and divergence
Finance Minister Andrzej Domański projects Poland’s GDP will grow by about 3% in 2023 and nearly 4% in 2024, driven by increased EU-funded investments under the National Recovery Plan. While Domański’s outlook is more optimistic than international forecasts, the European Commission predicts 3.6% GDP growth for 2024, and the OECD estimates 3.4%. For 2026, the OECD expects growth to slow to 3% as government spending moderates under EU deficit rules. Inflation is expected to average 5% in 2024 and fall to 3.9% in 2025.
Pekao SA eyes Alior Bank acquisition
Poland’s second-largest bank, Pekao SA, may acquire Alior Bank in a move supported by major shareholder PZU. A letter of intent outlines potential market-based terms for the transaction, valuing Alior at €795 million based on its current stock price. If completed by mid-2025, the deal could streamline PZU’s holdings and significantly expand Pekao’s market share, though it won’t yet surpass state-controlled PKO BP, Poland’s largest bank. Analysts speculate on the potential for further integration, possibly merging the two entities into one larger bank.
EU economic trends: Central Europe falls behind
Eurostat data indicates the European Union’s economy grew by 0.4% quarter-on-quarter and 1% year-on-year in Q3, marking the strongest performance in two years. Spain leads with 3.4% annual GDP growth, while Poland and the Netherlands follow with 1.7%. Conversely, Germany, Romania, and Hungary saw GDP contractions, with Austria, Estonia, and Latvia reporting even sharper declines.
Quarterly growth paints a slightly different picture. While Lithuania posted a robust 1.2% increase, Poland’s GDP contracted by 0.1%, mirroring declines in Austria and Romania. Both Austria and Latvia are now officially in recession, having posted two consecutive quarters of GDP decline.
Fitch upgrades Hungary's rating outlook
Despite Hungary's ongoing economic recession, the country has received a glimmer of good news from credit rating agency Fitch. While the nation’s credit rating remains unchanged, Fitch has upgraded its outlook from negative to neutral. This shift signals that Hungary is no longer at immediate risk of a downgrade, a significant relief given that its current rating is just two notches above "junk" status. A downgrade would have placed Hungary on the brink of speculative-grade territory, potentially damaging its already fragile reputation in global financial markets.
Fitch attributes the improved outlook to Hungary’s success in combating high inflation and eliminating its trade deficit. The government has also committed to reducing its budget deficit, with Fitch projecting a decline from 6.7% of GDP in 2023 to 3.7% by 2026. Public debt, which currently stands at 75% of GDP, is also expected to decrease gradually over the same period.
However, Fitch warns of continued obstacles. Political tensions with the European Union have restricted Hungary's access to critical EU funds, a situation unlikely to change soon. Additionally, the agency highlights Budapest’s history of unconventional economic policies, such as state-mandated fuel price controls that discriminated between domestic and foreign drivers, and targeted taxes on foreign-owned supermarkets and banks. These measures have raised concerns about Hungary’s policy predictability, further complicating its financial outlook.
While Fitch’s improved outlook offers some reassurance, Hungary’s path to full economic recovery remains uncertain, reliant on both domestic reforms and its ability to mend relations with the EU.
