PL: Rising political risks in Poland

Instant Comment , 3. Juni
Rising political risks in Poland

Prime Minister Tusk announced on Monday evening that he would file for a vote of confidence in the coming days to remove any doubts about whether the current government has a mandate to rule. He appeared confident and stated that the vote would be a formality. He emphasized that the government is prepared to proceed with its reforms regardless of the outcome of the presidential elections.

With Nawrocki set to be Polands President, the road ahead for the government looks bumpy. The President holds some legislative power in Poland, as a two-thirds majority in Parliament is required to override a presidential veto. At present, the current government does not have such a majority, meaning Nawrocki will be in a position to block the legislative process. Nawrocki will also appoint the Governor of the central bank, as the current governor Adam Glapiskis term ends in 2028. Other members of the Monetary Policy Council (MPC) will also be appointed by the President. However, we do not expect any major shifts in the MPC.

Political uncertainty is expected to remain elevated in Poland in the near future amid rising speculation about the future of the ruling coalition. Although early parliamentary elections are not our baseline scenario, we view Tusks decision to call for a confidence vote as a risky decision. Its likely that the result will be a continuation of the existing governing coalition although personal reshuffle cannot be ruled out.

If the current government fails to win the confidence vote, the early election scenario presents the considerable likelihood that the next government could be a coalition between Law and Justice (PiS) and Konfederacja, reflecting a shift to the right.

On Monday, the reaction in the Polish FX market to Nawrockis presidential victory was short-lived. The EURPLN rose to 4.27 but then fell back to 4.25 in the early afternoon. Today, EURPLN increased again to 4.27, reflecting that risks related to the confidence vote cannot be ignored. Volatility in the Polish FX market is likely to remain high. An early election scenario would be negative for the markets. In that case, we would definitely re-evaluate our current EURPLN forecast, which we currently see close to 4.25 at the end of 2025. Otherwise, the economic fundamentals and the growth outlook in Poland support a relatively strong zloty, in our viewespecially as the flow of EU funds is expected to pick up further.

At this point, we do not foresee any major revisions to our forecast in response to Nawrockis victory. Poland should remain one of the best-performing economies in the regionand most likely in the EUthis year. Fiscal expansion supports dynamic GDP growth. On the fiscal front, we may see less consolidation than we would have expected in the event of a Trzaskowski victory. However, both the government and the new President will be interested in sustaining solid economic development. Inflation trends should allow some room for monetary easing later this year. Nevertheless, the overall scale of monetary easing delivered this year may be lower than we currently expect.