Poland's Crossroads: Elections and Economic Shifts to Watch in May 2025

As Poland prepares for its pivotal presidential election on May 18, 2025, investors face a landscape shaped by political uncertainty, economic resilience, and shifting monetary policy. With the incumbent president ineligible for re-election, the outcome of this vote could redefine Poland’s trajectory in key areas—from fiscal policy to its stance on regional security. Here’s what to watch.

The Election’s Political Crossroads

The May 18 presidential election will determine whether Poland’s governing coalition, led by Warsaw Mayor Rafał Trzaskowski, retains its momentum or faces a disruptive shift. A runoff on June 1 is all but certain, with Trzaskowski’s victory likely enabling the coalition to advance reforms such as EU funding acceleration and public-sector wage hikes. Conversely, an opposition win could stall these plans and reshape Poland’s alignment with Western allies.

Geopolitical tensions loom large. Poland’s strong anti-Russia stance and its role as a NATO frontline state mean the election’s outcome could influence its support for Ukraine and EU defense initiatives. Investors should monitor rhetoric on energy security and EU integration, as these priorities will shape long-term fiscal and trade policies.

Economic Outlook: Growth Amid Fiscal Constraints

Poland’s economy is projected to grow 3.4% in 2025, driven by robust private consumption and rising wages. Real wage growth, bolstered by a 20% minimum wage hike and labor shortages, is outpacing inflation (projected at 4.2% for 2025). However, fiscal risks persist: the deficit is expected to narrow to 4.6% of GDP, but public debt will rise to 57.7% due to defense spending and social programs.

While consumption remains strong, net exports are a drag, as domestic demand fuels imports. Investors should watch retail sales data (due May 15) and unemployment figures (historically near 3%) to gauge consumer health. Meanwhile, delays in EU-funded projects risk slowing investment, a key concern for sectors like infrastructure and renewable energy.

Central Bank Eases Rates, but Caution Persists

The National Bank of Poland (NBP) is expected to cut its policy rate by 25-50 basis points in May, marking the first easing since October 2023. The move reflects declining inflation (now at 4.2%) and softening wage growth. A dovish pivot by NBP Governor Adam Glapiński signals a shift toward supporting growth without reigniting price pressures.

While markets anticipate further cuts—potentially totaling 100 bps by year-end—risks remain. A weaker zloty or geopolitical flare-ups could reignite inflation, forcing the NBP to pause. Investors in Polish bonds and equities should monitor the central bank’s communications for clues on future paths.

Geopolitical Risks: Russia’s Shadow and Ukraine

Poland’s election occurs amid heightened geopolitical anxiety. The country has accused Russia of interfering in its domestic affairs, a claim underscoring vulnerabilities in cybersecurity and media. With Russia’s war in Ukraine ongoing, Poland’s border security and energy costs are critical. Any escalation could disrupt trade flows and inflation forecasts.

Investment Considerations

• Equities: The WIG20 index (up 12% YTD) may benefit from rate cuts and consumption-led growth, but geopolitical risks could limit gains.
• Bonds: NBP rate easing supports government debt, but fiscal deficits pose long-term risks.
• Currencies: The zloty’s stability hinges on inflation trends and geopolitical calm.

Conclusion

Poland’s May 2025 crossroads—political, economic, and geopolitical—present a nuanced opportunity. With growth robust but uneven, fiscal constraints mounting, and the central bank pivoting to ease rates, investors must balance optimism with caution. A Trzaskowski victory could unlock reforms and EU funding, while geopolitical risks remain a wildcard.

The numbers tell the story: 3.4% GDP growth and 4.2% inflation suggest a resilient economy, but 57.7% public debt and reliance on EU funds highlight vulnerabilities. As markets digest the election and NBP’s rate decision, investors should prioritize sectors tied to domestic consumption (retail, banking) while hedging against geopolitical shocks. Poland’s path forward depends on navigating this complex equilibrium.