• The finance ministry also bought CZK 10.7bn of bonds into its portfolio
• Gross bond issuance reached CZK 46.2bn in September, its highest level in 4 years
• Bond issuance added up to CZK 103.2bn in Q3, more than double the CZK 50bn ceiling
• We estimate that gross financing needs were covered at 78.8% in January-September

The finance ministry topped up the government bond auction on Sep 30 by CZK 0.15bn, according to auction data reported by the CNB. It brought the borrowed amount to CZK 9.3bn, well above the CZK 3bn borrowing ceiling. Moreover, the finance ministry bought CZK 10.7bn of bonds into its portfolio. As a result, gross bond issuance added up to CZK 46.2bn in September, the highest monthly issuance in 4 years. Meanwhile, the finance ministry sold a net CZK 16.2bn of bonds from its portfolio in September. Gross bond issuance added up to CZK 103.2bn in Q3, which was slightly more than double the CZK 50bn borrowing ceiling. T-bill issuance reached CZK 25bn, or half of the CZK 50bn ceiling.

Based on the information above, we estimate that the gross issuance of debt instruments that mature after the end of 2026 added up to CZK 577.9bn in January-September. The amount breaks down to:

• CZK 269.8bn of CZK-denominated bonds;
• CZK 170.1bn of net bond purchases to the issuer's portfolio;
• CZK 45bn of CZK-denominated T-bills;
• CZK 18.1bn equivalent of EUR-denominated T-bills (original amount of EUR 750mn);
• CZK 74.9bn of retail bonds.

Net inflows from operations with financial assets reached CZK 136.8bn in H1 2026. However, the funding and debt management strategy envisages net inflows of only CZK 3.6bn in 2026, which is the number we are using in our estimate. Gross financing needs are projected at CZK 738.2bn in 2026, which means they were covered at 78.8% in January-September.

• Electricity offer prices rose by 13.7% m/m in September, which was sharper than their 12.1% m/m increase in March
• Natural gas offer prices rose by 20.8% m/m in September, which was less than in March, but they already rose by almost 10% m/m in August
• The cumulative impact from energy offer prices is now +2.3pps, broken down to +1.4pps from electricity and +0.9pps from natural gas
• Not all of this will translate to retail energy prices, but the odds are we will see a sharp spike in CPI inflation in early 2027
• This makes further monetary tightening inevitable, and we can no longer rule out two more rate hikes in 2026

Energy offer prices reported a sharp increase in September, according to figures from the energy regulator. We are using the most common contract types in our analysis, which is the D02d tariff for electricity, and heating for natural gas, both with a 2-year fixed price clause. Furthermore, offer prices for heating and a single family home have been identical, which further increases the weight of that indicator. For indicative purposes, we also have natural gas prices for cooking, though they tend to follow a similar path to natural gas prices for heating.

At any rate, electricity offer prices rose by as much as 13.7% m/m in September, their sharpest increase in the current series, which dates back to November 2025. The increase is stronger than the one reported in March, at 12.1% m/m, which shows that energy suppliers have been trying to push back the time when they will need to raise prices. As far as natural gas prices are concerned, offer prices rose by 20.8% m/m for heating and single family homes, and by 20.4% m/m for cooking. This was a softer increase when compared to March, but natural gas offer prices already rose by almost 10% m/m in August.

We should reiterate that an increase in offer prices will not be necessarily fully reflected into final retail prices. Most of these offers apply to new contracts only, though existing contracts will be eventually adjusted when wholesale prices exceed a certain level. The terms when that happens vary considerably, however, though indexation is traditionally applied at the beginning of the calendar year. At this point, the cumulative impact on inflation has reached +2.3pps, out of which +1.4pps from electricity, and +0.9pps from natural gas. We will have a more precise potential impact on year-on-year inflation when the next release is published, as we will be able to calculate year-on-year changes.

Still, it appears that the impact of energy prices will be considerable, and we should start seeing some pressure in Q4 2026, though the biggest impact will be likely in Q1 2027. We expect that CPI inflation will certainly exceed 3% y/y in January, and will likely remain elevated in Q1 2027, close to 3.5% y/y. Risks to our projections are on the upside, as we have no good idea about how much pressure food prices will exert. Thus, depending on food prices, we may adjust our expectations upwards. This means that additional monetary tightening is inevitable. A 25bp rate hike in November now appears increasingly likely, and given the sharp increase in energy offer prices, we cannot rule out another rate hike in December.

• Markets expected the PMI to ease to 53.9
• New orders improved again, at their second-strongest rate since February 2022
• Employment rose sharply, as producers are trying to rebuild capacity in view of rising demand
• Input prices rose sharply due to the US-Iran war
• Optimism remains solid and above the long-term average

The manufacturing PMI eased to 53.5 in September, down from 54.1 in August, according to figures from S&P Global. The print was slightly below the consensus, as markets anticipated a decline to 53.9. Manufacturing operating conditions still improved at a robust rate, and it was the seventh consecutive month with an increase. New orders continued to rise at a robust pace, though slightly slower than in August, which explains the decline in the headline indicator. However, new orders increased at their second-strongest rate since February 2022, so improvement was considerable. Furthermore, output rose at a solid rate, though still softer than in August, leading to a sharp increase in employment, the strongest in the past 4.5 years. Panellists stated they wanted to build up production capacity after the recent increase in new orders, so this could reverse the erstwhile decline in manufacturing employment. Backlogs of work continued to accumulate, but this is mostly because it takes some time before the new labour force is fully integrated into production cycles.

Stronger demand led to a further increase in input purchases, though the pace of increase was modest. Supplier performance deteriorated markedly, which explains the slow build-up of inventories. Transportation delays, material shortages, and vendor capacity constraints were behind the extension of lead times seen in September. As a result, input prices rose sharply, reflecting a recent increase in energy prices, as a result of the US-Iran war. Output charges did not increase at the same rate, however, as producers were careful in passing costs to consumers.

Confidence weakened mildly when compared to August, but it remained higher than the long-term average. Optimism continued to be fuelled by new clients, new product launches, and expectations of stronger demand conditions. Thus, it appears that while manufacturing growth will not be substantial, the sector will see better times than earlier in 2026.

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• There was a moderate impact from economic activity, rising primarily among women
• Employment growth is still low, while unemployment growth remains robust, but the slowest in the past 14 months

The LFS unemployment rate (15-64 years) increased slightly to 3.41% in August, up from 3.37% in July, according to figures from the statistical office. In year-on-year terms, the unemployment rate was higher by 0.3pps y/y. The economic activity rate remained effectively flat in month-on-month terms, and it rose by 0.2pps y/y, so there was a limited impact from an expansion of the labour force. Still, one could argue that the unemployment rate among women was more heavily impacted, as it rose by 0.53pps y/y, up to 3.97%, while the economic activity rate of women was higher by 0.4pps y/y. Meanwhile, men's unemployment rate rose by 0.07pps y/y to 2.84%.

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Given the varying quality of monthly labour force surveys, we are using 3-month rolling data, according to which employment rose by only 0.6% y/y in August, faster by 0.2pps m/m. Meanwhile, unemployment growth remained robust, at 11.0% y/y, though it was the slowest increase in the past 14 months. Thus, it appears that the labour market is nearing a new equilibrium, with mostly manufacturing and low-skilled jobs being lost. There will be an improvement in data quality next year, as the statistical office will have a full set of employment data, collected after the launch of monthly employment reports this April.

• Short-term debt remained low, at 5.7% of the total
• Debt growth was driven primarily by long-term debt securities, both in quarter-on-quarter and year-on-year terms
• Fiscal deficits are the main reason for robust debt growth, and this will continue at least until the end of 2027

General government debt (Maastricht criteria) rose by CZK 14.9bn (0.4% q/q) in Q2 2026, adding up to CZK 3.84tn (43.8% of GDP) at the end of the quarter, according to figures from the finance ministry and the statistical office. In year-on-year terms, the debt stock increased by CZK 215.1bn (5.9% y/y). Short-term debt remained low, at 5.7% of the total at end-Q2, though higher by 0.2pps y/y. The main reason for the year-on-year increase was due to short-term external loans, likely related to central bank operations.

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There was no major deviation from typical patterns, as debt growth was mostly fuelled by long-term debt securities, both in quarter-on-quarter and year-on-year terms. Medium- and long-term bonds represented 87.1% of total debt at end-Q2, higher by 0.4pps y/y. The finance ministry reported a net amortisation of short-term debt instruments in Q2, though it was likely due to the sharp increase in borrowing costs provoked by the US-Iran war. Debt issuance recovered later in the year, so we expect that Q3 numbers will show once again an increase in money market borrowing. Still, the finance ministry has been issuing less T-bills than a year ago, which is a shift in policy under the new leadership.

Overall, debt growth remains mostly driven by high fiscal deficits, and this will continue throughout 2026 and in 2027. This government has insisted that it needs to increase public investment to promote economic growth, which is why we expect general government debt to reach 50% of GDP by the end of the decade.

• The 4q-rolling deficit reached 2.6% of GDP as of end-Q2
• A big increase in discretionary spending was behind the increase in deficits at general and central government level
• Social expenses, public investment, and a bigger wage bill were the main spending drivers
• Local governments are spending more on local projects, leading to a lower surplus
• The outlook is negative, as discretionary spending will increase even more in 2027

The general government budget reported a deficit of CZK 33.3bn in Q2 2026, reversing from a surplus of CZK 9.4bn a year ago, according to figures from the statistical office and the finance ministry. The cumulative deficit reached CZK 106.5bn in H1, considerably higher than the CZK 60.6bn reported a year ago. In 4q-rolling terms, the general government deficit expanded to 2.6% of GDP as of end-Q2, its highest level in the past 2 years.

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The deterioration in fiscal accounts was mostly due to a much faster spending growth, which reached 9.5% y/y in Q2 and 7.2% y/y in H1. In all fairness, there was some spending that would normally take place in Q1 but was delayed due to the government's decision to rewrite the 2026 budget bill. As a result, the lower house passed a permanent budget in late March, leading to much lower spending in Q1, and respectively more spending in Q2. Accrued basis doesn't apply here because in the absence of a permanent budget, the only spending that could be legally made was the one that is mandatory (like wages, pensions, social benefits). Even then, spending growth was much higher than the increase in revenue in H1, at 7.2% y/y against 4.7% y/y. The primary spending drivers, both in Q2 and H1, were social expenses, the wage bill, and public investment. Current transfers increased sharply as well, which partially reflects the wage bill, as most education and healthcare workers are managed at local government level. As far as discretionary policy goes, the wage bill increased by 7.2% y/y in H1, which is in line with the average 7% wage hike applied across the public sector in 2026. Meanwhile, public investment rose by 15.3% y/y, justified by the government's desire to improve transport infrastructure.

On the revenue side, growth reached 4.8% y/y in Q1 and 4.7% y/y in Q2, so a fairly stable increase rate. The increase was led by social contributions, which rose by 7.9% y/y in H1, with growth picking up to 9.6% y/y in Q2. The latter was mostly due to the increase in wages in the public sector, which automatically leads to higher proceeds from contributions as well. The other big increase came from VAT, which reflected rising oil prices, leading to an 8.0% y/y increase in both Q2 and H1. Income taxes reported a 2.3% y/y increase in H1, but only a 0.1% y/y one in Q2, suggesting that corporate profits may be suffering from the current energy crisis.

By government level, the deterioration in the headline deficit was entirely due to the central government, whose deficit reached CZK 107.1bn in Q2, higher by 3.3 times in year-on-year terms. Again, this is partially due to the absence of a permanent budget throughout most of Q1, but the increase was considerable in cumulative terms as well. As a result, the 4q-rolling central government deficit reached 3.0% of GDP at end-Q2, its highest level in the past 7 quarters. Local government budgets and social security funds reported an improvement in Q2, though local governments still saw a slightly lower surplus in cumulative terms. Local governments are expected to spend much more on local projects this year, which is why their surplus will likely narrow, one of the reasons for a higher anticipated general government deficit this year, at 2.6-2.7% of GDP.

All in all, budget developments confirm what we have been seeing at state government level, namely a combination of more discretionary spending and a difficult economic situation. High fuel prices have mitigated the impact of strong spending growth through greater VAT proceeds. On the other hand, weaker-than-expected economic activity will likely lead to a softer increase in revenues. The situation will deteriorate even further in 2027, when the government prepares even more discretionary spending growth, so budget deficits are likely to expand even further.

• 4 out of 18 panellists expected a 25bp rate hike in September
• A majority expects the policy rate at its current level in 12 months, which doesn't rule out more rate hikes in 2026
• Inflation expectations remain stable, but the projection range for 2027 is wide
• No adjustments to GDP growth, wage growth expectations for 2026 were lowered, likely due to data revisions

Financial markets increased their bets on further monetary tightening in September, according to the latest monthly survey of the CNB. There were 4 out of 18 panellists who expected a 25bp rate hike at the MPC meeting on Sep 17, even though communication from the CNB suggested stable interest rates. Two out of three foreign panellists bet on a rate hike, which is indicative of growing bets on more rate hikes. Regarding the policy rate in September 2027, there was a clear upward shift, as now 6 out of 18 respondents expect the policy rate to be at 4%, up from only one in the August survey. A majority still expect the policy rate to remain at the current level, 3.75%, which matches the CNB's forecast of 3.8%. We should point out that expecting the policy rate to remain at its current level in 12 months doesn't rule out more rate hikes in 2026 and possibly 2027. We reckon that some panellists expect the CNB to tighten monetary policy a bit more, and then ease around the middle of 2027.

Inflation expectations remained stable on average, as year-on-year inflation is expected to reach 2.6% y/y in September 2027, and 2.2% y/y in September 2029. In comparison, the CNB projects inflation at 2.5% y/y in Q3 2027. However, the projection range remains wide for 2027, between 1.8% y/y and 3.3% y/y, which shows you how much uncertainty there is. The projection range for 2029 is much tighter, between 2.0% y/y and 2.5% y/y, though it still indicates that inflation is expected to remain above the 2% target in the medium term. In the near term, panellists expect inflation to accelerate soon, based on higher energy prices, and a poor harvest this summer.

No changes were reported regarding GDP growth, which is still expected at 2.0% in 2026 and 2.4% in 2027. This matches most official forecasts, even though the CNB still technically projects GDP growth at 2.2% in 2026 and 2.7% in 2027. However, we expect a downward revision in the next staff forecast in November, given the latest developments. There was a downward revision in wage growth expectations, from 7.0% to 6.6% in 2026, while the 2027 projection remained at 5.7%. We attribute this to downward revisions from the statistical office, as Q1 numbers were revised downwards as well.

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Bringing down the government as a political theatre. What would the opposition do afterwards? (Lidove Noviny)

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A game about billions of debt. Executors protect their business with insurance receivables (Hospodarske Noviny)

When Meloni said "I was young and stupid", it sounded more truthful than if Babis or Pavel had said it (Lidove Noviny)

West is the favourite in a race with Russia. Yet, it is losing, a Russian historian warns (Mlada Fronta Dnes)

Czech police are also using suspicious software from a Russian firm (Pravo)

Collapse of a much-loved sector starts attracting investors (E15)

Mission ends. American soldiers leave Iraq after 12 years (Pravo)

Complications about new motorways? (Hospodarske Noviny)

Why are the same foods pricier in the Czech Republic than in Austria. It is less about profit margins than it seems (E15)

• General government deficit target is set at 3.5% of GDP in 2027, up from 2.7% of GDP in 2026
• Meanwhile, the state government deficit target is CZK 386bn in 2027, up from CZK 310bn in 2026
• We see a noticeable downside risk to the GDP projection, mostly related to the US-Iran war
• General government debt will likely near 50% of GDP by the end of this decade
• Public investment, wage hikes, and a boost in social expenses are the main reasons for the ballooned deficit in 2027
• We estimate that gross bond issuance will reach 6.9% of GDP in 2027, while net bond issuance will add up to 3.4% of GDP
• RRF expiration in 2026 will lead to a sharp decline in gross EU flows in 2027
• We doubt that this ruling coalition has the commitment to implement fiscal consolidation in 2028 and 2029
• The election cycle is the greatest obstacle, as the next general election is due in 2029

The government's spending appetite will lead to a sharp increase in the 2027 fiscal deficit, according to the 2027 budget bill. In particular, the state government budget will aim at a deficit of CZK 386bn in 2027, up from CZK 310bn in 2026. Meanwhile, the general government budget will seek a deficit of 3.5% of GDP (2.8% of GDP after the escape clause is applied), up from 2.7% of GDP in 2026.

The biggest part of the increase is due to discretionary policies, as part of the ruling coalition's programme, which aims to boost public investment, as well as raise public sector wages. There are also some less impactful moves, like giving pensioners a one-off bonus, as well as raising the minimum wage by slightly more than 11%. All this is combined with minimal revenue-side measures, and vague promises of fiscal consolidation from 2028 onwards. As a result, a vast majority of the spending increase will be funded by debt, with gross bond issuance likely to reach 7% of GDP in 2027. The ruling parties have stated ambitions to reduce the deficit by CZK 20bn when compared to the official target, but the only specific measure announced so far is a windfall tax on refineries, which should bring in CZK 5.5bn.

Macroeconomic framework carries strong downside risks to economic growth

The macroeconomic framework would be fairly standard under normal circumstances, though it clearly bets on some resolution to the US-Iran war in 2027. We see a sizeable downside risk in the GDP growth projection, currently at 2.4% in 2027. The original 2026 budget bill also had a GDP growth projection at 2.4%, and the latest official forecast is 1.9%. Thus, we believe a similar risk exists in 2027, given that the conflict is nowhere near a solution at this point. There could be potentially a turnaround if the Democrats take control of both houses of the US Congress, but this is a relatively unlikely scenario at this point.

The same goes for the inflation forecast, mostly in relation to the global oil price projection. If the US-Iran war ends, then we would consider the framework as realistic. However, a prolonged conflict will very likely lead to a much higher level of oil prices, and respectively stronger domestic CPI inflation. In turn, that may lead to more wage growth pressure in the labour market, which remains relatively tight.

In all fairness, the outcome of geopolitical conflicts is difficult to predict, which is why we are not casting blame on the finance ministry for not envisaging such a scenario.

General government budget to see its highest deficit since 2023

The general government budget will likely see its highest deficit since 2023, at 3.5% of GDP in 2027. We should note that for SGP purposes, the deficit target is 2.8% of GDP, which includes the EU escape clause, mostly for defence spending over 2% of GDP. Moreover, fiscal loosening is expected to be significant in 2026 as well, when the general government deficit is projected at 2.7% of GDP, up from the original target of 2.2% of GDP. We expect that the final result for 2026 will be slightly better, mostly because of the windfall tax on refineries. While proceeds will be collected in 2027, this is effectively a retroactive tax, and it will apply on the increase in gross margins (the difference between oil cost and final product value) in 2026. We project that the final general government deficit will be 2.6% of GDP in 2026, which doesn't make a substantial difference.

Arguably, the government would probably not spend as much if the EU escape clause did not exist, so that should be considered as well. However, the mood in this government has been clearly aimed at boosting public spending as much as possible without breaking SGP rules. Thus, the more the EU relaxes its fiscal rules, the more likely it will be that Czech spending will remain high. Technically, the government has committed to lower general government deficits sharply in 2028-2030, down to 2.0% of GDP in 2028, 1.6% of GDP in 2029, and 1.2% of GDP in 2030, according to its fiscal structural plan. However, we doubt that these targets will ever be met, given that there is a presidential election in 2028, and a general election in 2029.

As a result, general government debt will likely rise at a substantial pace, with official projections putting it at 47.3% of GDP at the end of 2027. We expect that general government debt will likely reach 50% of GDP by the end of the decade. At this point, it apparently doesn't matter much, judging from the latest credit rating reviews, as the Czech Republic's external position remains strong. However, we are concerned that a prolonged period of geopolitical conflicts may threaten that, which will inevitably reflect on Czech credit ratings. Debt levels remain moderate at this point, but the odds are that the next government may have to deal with the activation of the debt brake, at 55% of GDP, which mandates an immediate fiscal consolidation.

Public investment, public sector wages, and social expenses to boost spending in 2027

The main reason for the substantial spending increase in 2027 is discretionary policies, mostly public investment and wage hikes. The government intends to raise public investment not covered by EU flows by 27.4% in 2027, though a non-negligible part is replacing the money that has been thus far received through the RRF. However, less than half of the total CZK 48.8bn increase in investment not covered by EU funding can be explained with the decline of EU capital flows (CZK 21.1bn in 2027). The government has been adamant that it needs to spend much more on transport infrastructure and healthcare to stimulate economic growth, which would eventually pay off.

However, this doesn't cover the substantial increase in the wage bill, where an average wage hike of 6.8% will cost CZK 33.9bn in 2027. In a quick technical note, the personnel chapter in the state government budget covers only a part of the increase. The rest is included in transfers to local governments, as most educational and healthcare institutions are managed at local government level. The government also granted a one-off bonus of CZK 2,000 to pensioners, which will cost CZK 9.2bn, and raised the minimum wage by 11.2%, with a net fiscal cost of CZK 9.1bn. The latter accounts for higher wages, as most people earning a minimum wage are employed in the public sector, as well as more revenue from social and health insurance contributions.

The big revenue-side measure is the reintroduction of the electronic registration of sales (EET), which is expected to generate CZK 14-15bn in 2027. This may be a bit ambitious, but the original introduction of the EET system was successful, so this could indeed be beneficial. Still, we see some downside risk to that revenue projection. There are some minor changes to VAT and unemployment benefits, as well as the introduction of a windfall tax on refineries. The latter requires some more notes, as it is technically a retroactive tax, applied on refineries' gross margins in 2026. However, because proceeds will be collected in 2027, it will impact budget performance in cash terms. The thing is, since the tax is technically retroactive, it is not included in the 2027 fiscal projections, though it was mentioned in budget documents.

Gross bond issuance will likely near 7% of GDP in 2027 to cover state budget deficit

As mentioned above, the state government budget will target a deficit of CZK 386bn in 2027, up from CZK 310bn in 2026. Revenue is expected to rise by 3.8%, with tax collection expected to be stronger by 5.6%. The slower headline increase in revenues is primarily due to EU funding flows, which will decrease by 23.3% reflecting the end of RRF funding in 2026 and a high base. Meanwhile, spending will rise by 6.5%, which is higher than the projected increase in tax revenue. The big increase is in capital expenses that should rise by 10.5%, while current expenses are planned to increase by 6.0%. Transfers will be the strongest driver of expenditure growth, rising by 7.7%, a big part being the wage hike in the public sector. The other big spending increases will be observed in social expenses (up 3.1%), debt service costs (up 17.9%), and personnel expenses (up 8.9%). Interest expenditure is projected to reach as much as 1.3% of GDP, indicating how the recent spending increase has been funded by debt.

Financing will be primarily through domestic debt issuance, with the finance ministry relying mostly on long-term debt instruments issued in local markets. There will be some long-term external financing, at CZK 64.4bn (EUR 2.7bn), which will be exclusively through bilateral loans from IFIs and the EU. The finance ministry has been ruling out bond issuance under foreign law. We assume that the entire long-term domestic financing will be through domestic bonds, which has been a common practice thus far. According to finance ministry data, a total of CZK 326.8bn in government bonds will mature in 2027. As a result, we estimate that gross bond issuance will reach CZK 655.2bn (6.9% of GDP) in 2027, while net bond issuance will add up to CZK 328.4bn (3.4% of GDP). Please note that this is an unofficial estimate, as the finance ministry will publish its funding and debt management programme in the first week of 2027.

Expiring EU programmes to cause much lower gross EU inflows in 2027

EU flows will be impacted the most by the expiration of the RRF at the end of 2026, creating a high comparison base. As we noted above, gross EU flows are projected to fall by 23.3% in 2027, the biggest part being due to no more RRF funding. However, it is far from the only reason, as financing from cohesion policy programmes is also wrapping up, even if the absorption rate is still technically low, at 32.3% of total allocations. At this point, about 45% of total allocations have been paid out to beneficiaries, and 92% of all projects have been approved for financing. Thus, what remains is a slow churn of payments from the EU budget, which will be spread until 2029. It will increase the weight of domestic investment, which has already been reflected into capital expenses in 2027.

Conclusion

The 2027 budget represents the biggest fiscal expansion that has not been forced by external circumstances in more than 15 years. Arguably, the last time fiscal deficits rose so sharply was during the global financial crisis in 2008-2009, and during the Euro crisis in 2012. While fiscal deficits were high in 2020-2023, they were triggered by the Covid-19 pandemic (2020 and 2021), and the energy crisis triggered by Russia's invasion of Ukraine (2022 and 2023). The main difference to the current situation is that deficits were reduced after those crises were over, while this government's commitments to fiscal consolidation are dubious at best.

There has been talk of fiscal consolidation that could start in 2028, but out of the three ruling parties, only the Motorists are ideologically committed to fiscal discipline. However, based on the debate about fiscal targets in 2027, the Motorists' influence remained low. FinMin Alena Schillerova (ANO) could be considered the closest to a fiscal hawk in ANO, the senior ruling party, yet she pushed through a major relaxation of fiscal rules without much second thought. She has been speaking of fiscal consolidation measures recently, but she can be easily overruled by PM Andrej Babis.

Thus, we expect that fiscal deficits will remain close to 3% of GDP in the coming years, with little effort for a consolidation similar to what the government of Petr Fiala did in 2024. The greatest obstacle will be the election cycle, as the next general election is due in 2029. The Fiala-led coalition lost the 2025 general election largely because of that fiscal consolidation strategy, so we doubt this coalition will follow the same path. While there may be some reduction of fiscal deficits in 2028 and 2029, we don't expect a return to deficit levels from 2024 or 2025.

• Maximum petrol prices are higher by 0.6% when compared to Sep 21, while maximum diesel prices are lower by 3.4%
• We estimate that petrol prices have increased by almost 30% since the US-Iran war started, while diesel prices are higher by almost 39%

The finance ministry set maximum fuel prices close to market levels, according to a press release. The regulation, which was in effect between Apr 8 and Jul 19, has been reinstated as of Oct 1, and will apply until the end of October, at least for now. The maximum profit margin for fuel retailers has been set at CZK 2.50/l. Wholesale prices remain unregulated, and will continue to reflect global oil prices.

Thus, maximum petrol prices were set at CZK 46.14/l on Thursday (Oct 1), while maximum diesel prices will be CZK 48.72/l. Compared to the latest market data, which is from Sep 21, the petrol price cap is 0.6% above market levels, while the diesel price cap is lower by 3.4%. We will have a more precise comparison on Friday (Oct 2), when fuel price data for Sep 28 will become available. Since the beginning of the US-Iran war, petrol prices have increased by almost 30%, while diesel prices - by almost 39%, according to our estimates.

• Demand concentrated at longer end, yields increase

The State Debt Management Agency (AKK) raised HUF 74.0bn in three-, five- and ten-year government bonds at the latest primary auction, according to AKK data. The issued amount exceeded the HUF 55.0bn plan for the tender due to strong demand, which was concentrated entirely on the ten-year bond. Conversely, demand for the three-year bond was relatively low and the final issuance fell short of the plan. Total bids amounted to HUF 181.5bn and provided a strong overall bid-to-cover ratio of 3.3x. Average yields increased visibly compared to the previous tender two weeks ago and were also slightly above the respective secondary market benchmark rates. The curve again inverted between the five- and ten-year maurities, possibly helped by the strong demand at the longer end.

• September is above-average month for manufacturing activity
• New orders show strong m/m increase, m/m deterioration observed only in delivery lead times

The Purchasing Managers' Index (PMI) rose by 1.7pts m/m to 53.2pts in September, the logistics association Halpim reported. The PMI print for August was revised up by 0.2pts with the current release, we note. Survey respondents indicated faster expansion of manufacturing in September compared to the previous month, the association said. The PMI level in September was stronger than average, exceeding the long-term average and the September average of the past three years, it added.

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Nine of the PMI sub-components were in expansion territory during the month, while the monthly changes in the individual items were relatively low. The highest m/m improvement of 4.5pts was observed in new orders and external demand also seemed to contribute to the rebound in the general demand conditions. The export index rose by 2.1pts m/m and its level indicated strong growth. Delivery lead times was the only sub-index to deteriorate in September. It fell by 0.2pts m/m and remained significantly below the neutral 50pts threshold.

The production sub-index rose by 2.4pts m/m and continued to show expansion. Manufacturers also scaled employment plans up, albeit only slightly, with the relevant sub-index rising by 0.2pts m/m. Employment plans have hovered around the neutral threshold for a prolonged period of time, in our opinion signalling that the rebound in manufacturing remained fragile. The survey confirmed the trend for strengthening cost pressure and the purchase price index rose further by 3.8pts m/m in September.

• Housing loan programme continues to boost loan volumes
• Interest rates on retail, corporate forint loans decline m/m
• Corporate borrowing growth remains stable

The stock of bank loans to the private sector increased by 12.5% y/y as of end-August and its growth continued to strengthen, according to the monetary statistics of the National Bank of Hungary (NBH). The upward trend has been mostly associated with the subsidised housing loan programme, which generates large new loan volumes each month. The programme was launched in Sep 2025 but fully kicked in in Oct 2025, so we expect the related base effect to subdue lending growth visibly in the next months.

Data Download

Data Download

In real, transaction-based terms, retail loans expanded by 19.3% y/y in August and the growth maintained the trend of steady acceleration. Households borrowed net HUF 199.2bn of new loans during the month, which was slightly lower than in the previous few months but still considerably strong. The seasonally-adjusted retail loan volume was practically unchanged, the data showed, in our opinion confirming the general impression that there was no underlying shift in borrowing demand yet. Housing loans accounted for the largest 71.1% share of the new borrowing in August, followed by personal loans. Interest rates on housing and personal loans declined m/m during the month and we attribute it to bank competition and the monetary easing during the period.

The stock of corporate loans rose by 5.8% y/y at end-August. It picked up slightly from the previous month but generally followed a flat pattern in the past few months. The y/y dynamics of new corporate loans suggested the same stabilisation of corporate borrowing, we assess. Corporate loans were up by 8.7% y/y in real, transaction-based terms in August, easing only slightly from the 9.0% y/y growth in the previous month. Non-financial companies repaid net HUF 11.0bn of loans during the month, representing the first loan deleveraging since March. It reflected net repayment of forex loans, while net borrowing of forint loans was still positive, albeit relatively low at HUF 33.3bn in August. Interest rates on forint loans declined m/m with the pass-through of the policy rate cuts, while rates on EUR loans were rather on the rise due to the ECB tightening, we think. The diverging trends in forint and EUR loan rates probably contributed to the shift in corporate borrowing demand towards forint loans during the month, we believe.

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• Deficit continues to widen y/y in Q2, unlike cash budget
• Revenues are depressed by slow EU fund absorption, in our view
• Spending growth slows down with fading of pre-election wage, pension bonuses

The budget deficit, measured under the EU's accrual methodology, widened by 128.8% y/y to HUF 2,809.5bn in H1, the statistical office (KSH) reported. The expansion continued the trend from the previous quarter. In Q2 alone, the budget generated a HUF 758.2bn deficit, compared to a HUF 62.3bn surplus in the base quarter. The accrual-based budget data deteriorated further in Q2 unlike the cash-based execution. The divergence reinforced our assumption that the favourable cash-based outturns in May-Jul were partly based on withholding of cash spending, which otherwise continued to accrue as due spending. The cash budget realised a large deficit in August, but we do not expect a similar development to show up in the ESA-based budget figures for Q3 as EU fund-related expenditures are booked simultaneously with reimbursements, according to the ESA methodology.

The budget deficit represented 6.2% of the seasonally-adjusted GDP for the period in H1.

Data Download

The deterioration of the budget position in Q2 was entirely due to weak revenues. Total budget revenues fell by 3.6% y/y, reflecting a considerable decline in other revenue. The other revenue item usually includes EU fund transfers, so we think the y/y revenue decline reflected the pause in EU fund absorption after the change in government since April. Tax revenue also slowed down compared to Q1, in our opinion reflecting the disinflation process and the sluggish economy. In addition, personal income tax revenues in Q1 were supported by the substantial bonus payments in the state security sector, while this effect disappeared in Q2, we note.

Budget spending rose by 4.6% y/y in Q2 and its growth slowed down considerably from Q1. The slowdown in spending growth could be mostly attributed to the fading effect of pre-election bonuses for state security personnel and retirees, we believe. Accordingly, the moderation in budget spending was the most pronounced in the area of payrolls and social benefits, we note. Spending in Q2 was also weaker than average in the case of intermediate consumption and other expenditures, which we associate respectively with the disinflationary environment and the slowdown in EU fund absorption. Spending restraint by the new government possibly also had a small depressing impact on intermediate consumption and wages, in our opinion.

• Economic cabinet to have independent decision-making authority on fiscal, economic, energy issues
• Appointment of Karman suggests prioritisation of fiscal discipline, we believe

Finance minister Andras Karman will head the economic and budgetary cabinet of the government, Karman announced in a social media post. The sub-cabinet will take care of professional matters, aiming to alleviate the burden on government meetings. The economic cabinet will have independent decision-making authority over tax policy, public finances, economic and business development, energy and climate policy, employment, industry and trade, financial markets and international financial relations. Decisions made by the economic cabinet will not need to be brought to the government, leaving the government to focus on strategic issues, Karman explained. The economic cabinet will meet on a bi-weekly basis on Wednesdays. The re-organisation also created other sub-cabinets, including a development cabinet, strategy cabinet and defence cabinet.

The economic cabinet will clearly encompass a number of areas under the management of the economy ministry led by Istvan Kapitany, we note. Kapitany is a prominent member of the government, so the choice to appoint Karman instead to head the economic cabinet probably signals that a priority is put on fiscal consolidation and discipline, in our view.

Prosecutor's office has initiated arrest of ex-culture minister Balazs Hanko (Magyar Nemzet)

Situation in tourism has not been this dire since coronavirus pandemic (Magyar Nemzet)

Has PM Peter Magyar's momentum run out? Confidence index continues to decline, according to Ipsos survey (Magyar Nemzet)

Government and Budapest mayor Gergely Karacsony will sit down at negotiating table again (Vilaggazdasag)

Asset Recovery Office (NVVH) head Anna Unger breaks down on public TV, she is unhappy with opposition Fidesz comparing NVVH to former secret service (Vilaggazdasag)

Hungary could miss out on oil deal of the century, oil and gas group MOL might be pushed out from acquiring Serbian NIS (Vilaggazdasag)

Economy minister Istvan Kapitany lost this game very badly: Finance minister Andras Karman becomes chairman of economic cabinet (Vilaggazdasag)

PM Peter Magyar and Budapest mayor Gergely Karacsony are preparing to agree on important strategic issues for Budapest (Heti Vilaggazdasag)

Tax administration NAV's director and deputy dismissed (Heti Vilaggazdasag)

Asset Recovery Office (NVVH) head Anna Unger: First 30-40 investigators of NVVH will start work on Thursday (Heti Vilaggazdasag)

PM Peter Magyar to President of State Audit Office: Abetting crime and getting well paid to turn a blind eye are unforgivable crimes (Heti Vilaggazdasag)

EU Court rejects lawsuit of six Hungarian universities against EC for withholding financing (Heti Vilaggazdasag)

• Revision of buffer levels is not warranted in current neutral, low-risk environment
• Housing market overvaluation risk remains elevated but are addressed by systemic risk buffers

The National Bank of Hungary (NBH) maintained the counter-cyclical capital buffer unchanged at 1% for Q4/2027, the NBH announced. The buffer has not been changed since Q3/2025. Setting an additional capital requirement above this level is not required at present in view of the neutral risk environment, the NBH explained. The risk heat map showed low cyclical systemic risks, it pointed out. Risks from real estate market exposures were on the rise due to the overvaluation of the housing market and increased collateral encumbrance, it argued. These risks, however, have been addressed by the sectoral systemic risk buffers on exposures to commercial real estate and housing loans, which were introduced as of Jan 1, the NBH pointed out. The systemic risk buffers for both segments have been set at 1% and revising their level was not necessary either, it said. Risks on these markets have not changed significantly since the buffers were rolled out, it explained. The counter-cyclical capital buffers are reviewed on a quarterly basis, while the systemic risk buffers are reviewed at least annually, the NBH reminded.

• Next MPC meeting: Oct 20, 2026
• Current policy rate: 5.50%
• EmergingMarketWatch forecast: Hold
• Rationale: NBH to wait for market reaction to mid-term fiscal framework before deciding on rates

The MPC is set to keep the policy rate on hold in October after the hold decision in September. The hold decision in September was based on the intensification of the global energy price risks, which were one of the reasons for the deterioration of the inflation outlook. The NBH revised its inflation forecast for 2027 significantly up with the September Inflation Report due to higher fuel prices and the government's hike of the excise tax on tobacco. Another important decision in September was the revision of the mid-term inflation target from 3.0% to 2.5% as of the beginning of 2028. The lowering of the target had been expected after a number of signals from key NBH officials and was justified by the need for gradual convergence to the ECB target in view of the government's ambition to fulfil the eurozone convergence criteria by 2030. The new mid-term target was expected to be reached in a sustainable manner in mid-2028, based on disciplined monetary policy, stable exchange rate and a decline in energy prices.

Data Download

Data Download

The NBH did not close the door for further policy loosening though. The MPC will use a data-driven approach in the next months, which will allow either a hold or a cut in the short term, NBH governor Mihaly Varga said at the background discussion after the September rate-setting meeting. Deputy governor Zoltan Kurali later elaborated that the possibility for another rate cut by the end of the year depended on the credibility of the government's eurozone ambitions, as presented in the upcoming mid-term fiscal framework. The NBH will wait to assess the market reaction to the mid-term fiscal framework whether it will realistically support the government's convergence criteria target before moving on the policy rate, Kurali explained. The mid-term fiscal framework will be published in the second half of October, so we believe there will be no technical time for the NBH to react on its October meeting. Our baseline scenario is therefore for a policy rate cut not earlier than November, depending on the market reaction to the mid-term fiscal framework, in other words the development of domestic yields and the forint exchange rate. Meanwhile, further deterioration of the global energy price outlook and rate hikes by global central banks could also preclude another rate cut.

The MPC maintained in September that it will keep the real interest rate positive in the next months, pointing out that it was important for keeping the forint stable and anchoring inflation expectations. In this sense, the monetary policy guidance was not much changed in September, while the stance shifted to wait-and-see because of uncertainty regarding the fiscal consolidation path and the global energy price risks. The MPC also expected the lowering of the inflation target to have a guiding impact on inflation expectations going forward, fostering disinflation after mid-2027.

Post-meeting MPC statement from September rate-setting meeting

Background presentation of NBH governor Varga after September rate-setting meeting

Minutes from August MPC rate meeting

Inflation Report - Q3/2026

MPC meeting calendar 2027

Inflation is at a high with a four, prices are rising at their fastest in over a year (Rzeczpospolita)

Fuel prices have driven up inflation, what will the MPC do (Rzeczpospolita)

Polish debt is approaching a dangerous threshold (Rzeczpospolita)

Tusk presses, Nawrocki waits, what will happen to taxes next year (Rzeczpospolita)

Taxes to rise after the election? (Rzeczpospolita)

Demographics explain what awaits the Polish economy (Rzeczpospolita)

New Left is looking at its mistakes (Gazeta Wyborcza)

The president's horses (Gazeta Wyborcza)

PiS govt sold Orlen shares cheaply, depriving govt of full control over corporation [four years ago, the state 'earned' PLN 1.5bn from the sale, but these shares are worth over PLN 4.5bn now] (Gazeta Wyborcza)

Court grants request, prosecutors surprised [regional court in Warsaw agrees to issue letter of safe conduct to Romanowski, former PiS-era deputy justice minister accused of wrongdoing and avoiding justice by residing abroad] (Gazeta Wyborcza)

• Adjusted public debt measure to move close to 55%/GDP threshold in 2027, exceed it in 2028
• That will trigger automatic stabilisers
• Regular public debt measure to peak at 59.2% of GDP in 2029
• General govt debt to top 70% of GDP in 2028, hit 76.6% in 2030

The Finance Ministry published Wed. the Public Debt Management Strategy for 2027-30 adopted Tues. that sets the stage for a key public debt measure to exceed the 55% of GDP safety threshold in 2028 and therefore to trigger mandatory fiscal consolidation. The FinMin uses a public debt measure calculated according to Polish standards and which is adjusted for the FinMin's cash holdings and which uses average annual exchange rates. In this strategy, it has further complicated matters by publishing forecasts for a situation in which the budget deficit hits the ceilings set out in the budget laws and another for a situation in which the budget deficit matches the government's forecasts, though these latter weren't released as for the state budget (the general govt deficit is to be 7.1% of GDP in 2026 and 2027, 6.8% in 2028, 5.3% in 2029, and 4.2% in 2030).

As noted on Tues., the FinMin now expects the adjusted public debt measure to rise to 54.7% of GDP in 2027 from 51.9% this year, barely missing the 55% of GDP threshold set out in the Public Finance Act. If the 2027 budget deficit is, however, at the maximum of PLN 281.2bn, then the risk will exist debt rises above the threshold already in 2027. If it does not, then it is projected to do so in 2028, which is to see the debt stock rise to 57.5% of GDP, well exceeding 55%. This public debt measure is to rise to 58.1% of GDP in 2029, but then fall to 57.3% in 2030 as the government then in office complies with the law.

The Public Finance Act says that if the relevant debt measure exceeds 55% of GDP but is below 60%, the budget for year n+2 (in this case 2030) can have no budget deficit or the difference between state budget revenues and expenditures in draft budget must ensure a decrease in State Treasury debt to GDP ratio compared with the ratio announced for the year in which debt crosses the 55% level. The FinMin in place in 2029 will therefore have to draft a 2030 budget that likely targets a reduction in State Treasury debt compared with 2028. The strategy published Wed. shows that State Treasury debt is expected to be 59.9% of GDP in 2030, which is a hair below the 60.0% expected in 2028.

The FinMin said that the 2030 budget would also have to limit local government deficits, not increase budget sector salaries, restrict pension indexation to CPI inflation, ban new loans and credits from the state budget, and limit state apparatus spending. The government would also have to review state budget expenditure financed by funds derived from foreign loans and multiannual programmes as well as prepare a fiscal consolidation program to ensure a reduction in the ratio of state public debt to GDP. The government is also mandated to review existing legislation in order to present proposals for legal solutions affecting the level of state budget revenue. The FinMin noted that its 2030 forecast assumes the above will be done.

If public debt exceeds 60% of GDP, then the government has to fulfill all of the above obligations, local government budgets must be balanced, no sureties or guarantees can be granted, and the government must prepare a plan to bring public debt to below 60% of GDP. The FinMin said that it does not expect the 60% of GDP level to be crossed.

Of the other debt measures, headline public debt compiled according to Polish standards is to rise to 55.9% of GDP in 2027 from 55.3% this year. Debt is to rise to 58.6% of GDP in 2028, peak at 59.2% in 2029, and then fall back to 58.3% in 2030.

Public debt according to Polish calculations doesn't even include all the actual public debt, and the general government debt total is even higher, exceeding the domestic one by some PLN 509bn in 2026 and by PLN 588.5bn in 2027. Debt here is expected to come in at 69.3% of GDP in 2027, 73.1% of GDP in 2028, 75.7% in 2029, and 76.6% in 2030. The main differences between the public debt measure compiled according to Polish standards and the general government measure are the latter includes debt from state bank BGK's COVID-era programs (which was some PLN 233.4bn at end-H1 2026), the Armed Forces Support Fund (PLN 118.9bn), the road fund KFD (PLN 67.6bn), and the Polish Development Fund's (PFR) COVID-era program (PLN 23.6bn), to name the biggest few.

Overall, the updated Public Debt Management Strategy means the debt threshold will be crossed and the matter is what will be done. The autumn 2027 election will bring a new government to power, which will likely have to execute the budget drafted by the outgoing Civic Coalition (KO)-led coalition next year. Its first budget will be the 2029 one but then it very well might have to consolidate public finances so that State Treasury debt falls as a share of GDP in 2030 and there are many restrictions, though it is perhaps not the fiscal bomb that it previously appeared to be. The main risk is political. The 2027 elections could very well produce a hung parliament, or a rocky coalition that might not have the stomach for even limited fiscal consolidation. There is always the chance the Public Finance Act will be altered or the government will tap NBP gold somehow, but Poland's fiscal situation seems likely to play a bigger role in the years ahead.

• Poland submitted Wed. the final RRF payment application worth PLN 55bn

Fund and Regional Policy Minister Katarzyna Pelczynska-Nalecz said Wed. that Poland would receive PLN 35bn from the Recovery and Resilience Facility (RRF) funds on Thurs. and that her ministry had submitted a final motion for funds worth PLN 55bn and which would flow for Christmas. The European Commission will assess the final application by Nov 20, and payment should be made by end-December. Pelczynska-Nalecz noted that despite a two-year delay in receiving the RRF funds, the government was able to ensure that Poland will receive 100% of what it applied for.

Poland has so far received PLN 150bn in RRF funds and would receive the remaining PLN 90bn in the remainder of the year. Pelczynska-Nalecz said that the entire RRF sum is being invested and that some 1.5% of GDP growth is thanks to the RRF investments alone. She noted that as of Sep 28 over 1.137mn contracts for the implementation of projects worth over PLN 235.0bn were signed with beneficiaries.

• FinMin raises financing from 89% at end-August
• FinMin covers some 80% of its original target, up from 75% at end-August
• FinMin has some PLN 170bn in cash at end-September
• FinMin to hold three bond auctions in October

Deputy Finance Minister Jurand Drop said Wed. that the ministry had raised coverage of its revised gross financing target of PLN 582.5bn to 94% from 89% at end-August, according to comments cited by the PAP news agency. Drop said that coverage of the original target of PLN 688.5bn was 80% at end-September, which is up from 75% at the end of the previous month.

Drop also said that the ministry had some PLN 170bn of cash at end-September. That is down from PLN 188.6bn at end-August.

Separately, the FinMin said that it would hold three T-bond auctions in October, offering PLN 22bn-38bn of bonds. It will offer PLN 7bn-12bn of bonds on Oct 14, PLN 8bn-14bn on Oct 22, and PLN 7bn-12bn on Oct 28. No switching auctions are planned for October, but the FinMin does plan the auction of PLN 2bn-4bn of 51-week T-bills on Oct 2.

Overall, if the FinMin sells the max at its three T-bond auctions and its one T-bill auction, then it will cover its borrowing needs in the Oct 28 sale, and that will open the door to pre-financing 2027 needs from November.

• Next MPC meeting: Oct 6-7, 2026
• Current policy rate: 3.75%
• EmergingMarketWatch forecast: 3.75%

Rationale: Fuel prices have pushed up CPI inflation, and it jumped to 4.0% y/y in September from 3.4% in August, rising above the 1.5-3.5% range around the central bank's 2.5% target for the first time since Jun-25. The inflation rise is predicated on what is a supply shock, but the Monetary Policy Council might prove sensitive to it due to the sheer scale of the increase, the fact the key rate is 3.75%, and the threat of knock-on effects, especially with other potential inflationary factors out there (i.e., food, tariffs, fiscal policy). The hawkish turn of events is likely to lead the MPC to begin discussing rate hikes as soon as the October sitting, as suggested recently by MPC member Ludwik Kotecki, but a hike doesn't seem likely yet.

The MPC will likely focus sharply on how much threat there is that the fuel shock will impact other areas of the economy. NBP and MPC head Adam Glapinski often focuses on a macro picture that includes wages, which have slowed of late and thus won't push the council towards a hawkish decision. He does focus too on fiscal policy, though here a high deficit is likely to make the MPC more hawkish than otherwise. The broader economy looks fair, though forecasts continue to be for a slowdown next year.

Other factors may loom large as well. Food prices have helped cap inflation in recent months, something Glapinski has noted at his monthly pressers. But the prospect for food price increases is clear, especially as diesel prices have soared to recent levels. Fertilizer prices have also jumped due to the war in the Middle East. Whereas this year's crops were based on fertilizer bought before the US and Israel's decision to attack Iran, next year's crops will reflect the much higher prices. Diesel and fertilizer together would seem likely to boost prices, especially in light of recent drought, heatwaves, and the global impact of El Nino.

Tariffs are another question. Power tariffs do look likely to rise next year, though the scale of this is an open question. The regulator URE is controlled by someone appointed by the ruling coalition and that would seem to make it likelier they seek to limit any tariff increases in order not to hurt the ruling coalition parties' chances in the autumn 2027 elections. The same goes for natural gas. Still, there is some scope for household tariff increases due to the big rise in wholesale prices, with the question how much at this stage.

In the end, Glapinski expressed a stance in September that clearly displayed the preference for rates to be kept on hold for some time, and to mid-2027. This is tantamount to meaning he would prefer the MPC waited out the runup inflation and then could return to easing later next year as the inflation outlook for 2028 is still good. But inflation has accelerated more than expected when the July inflation projection was done, and so that could worsen the outlook. This makes the November inflation projection update important. Any sharp deterioration in the outlook and the MPC could very well hike in November or later this year. That said, there are many uncertainties out there and if oil prices fall, this will take pressure off of headline inflation and might allow the MPC to keep rates flat for a longer period.

MPC's post-sitting statements

Latest council minutes

Latest NBP inflation report (July 2026)

Most recent MPC voting results

Archived video of all MPC press conferences

• Analysts lift CPI inflation forecast to 3.1% for 2026 and 3.2% for 2027, hold 2028 at 2.7%
• Analysts up GDP growth forecast to 3.6% for 2026 from 3.5%, hold other forecasts
• Analysts raise average rate forecast to 3.79% for 2026

The NBP's new Survey of Professional Forecasters saw local analysts raise their CPI inflation forecasts for 2026 and 2027 and slightly increase their GDP growth forecast for 2026, according to a document published Wed. and based on a survey conducted Sep 10-23. Analysts raised their CPI inflation forecast to 3.1% for 2026 from the 3.0% given in the previous survey done Jun 3-17. For 2027, analysts raised their inflation forecast more sharply, upping it to 3.2% from 2.9%. Analysts held their 2028 forecast at 2.7%. All inflation forecasts remain within the 1.5-3.5% band around the NBP's 2.5% inflation target, though one imagines there is some risk the 2026 one will be further increased.

Analysts raised their GDP growth forecast to 3.6% for 2026 from 3.5% before. They held their 2027 forecast at 3.0% and their 2028 forecast at 2.8%.

Analysts raised slightly their average benchmark rate forecast to 3.79% for 2026 from 3.76% before. This means rates are expected to be held for the rest of the year. For 2027, the average rate forecast was raised to 3.75% from 3.66% before, suggesting analysts might see flat rates for the year. The 2028 forecast is for 3.45%, down from 3.50% before.

The NBP surveys 21 financial institutions (including all major banks), 4 research centres, and 3 employer or union organisations.

Overall, analysts do see some risk of higher inflation this year, but are still relatively sanguine. If inflation rises only slightly in 2027, analysts expect interest rates to remain flat. But with inflation having jumped to 4.0% y/y in September, there is clearly some risk that the MPC will believe rates need to be increased later this year, especially if the November inflation projection update shows growing inflation problems.

Click here for our comprehensive database of macro forecasts.

• Debt stock rises 7.5% q/q
• Gross external debt rises to 55.4% of GDP at end-Q2 from 52.3% quarter before, we calculate

Poland's gross external debt stock rose by 15.0% y/y to PLN 2,229.1bn at end-Q2 2026 from PLN 1,938.6bn the year before, the NBP said in a Wed. data release. That marks acceleration from 7.8% y/y the quarter before and indeed is the fastest pace since Q4 2011. On a quarterly basis, the debt stock rose a sharp 7.5% q/q, quickening from the already fast 5.3% the quarter before. General government external debt accounted for some two-thirds of the increase as it rose 26.1% y/y in Q2.

To GDP, gross external debt rose to 55.4% of GDP at end-Q2 from 52.3% the quarter before and 51.3% the year before, according to our calculations. That is the highest since Q3 2022.

• CA deficit of EUR 6.2bn swings from EUR 712mn surplus in Q1 and widens from EUR 2.0bn yr before
• Trade deficit widens to EUR 4.6bn in Q2 from EUR 3.0bn year earlier
• Twelve-month CA deficit narrows to 0.4% of GDP after Q2 from 0.7% after Q1 2026

Poland's CA balance was revised sharply to a deficit of EUR 6.2bn in Q2 2026 from the EUR 5.1bn deficit previously reported for the individual months, according to data published Wed. by the NBP. The deficit of EUR 6.2bn swung from a surplus of EUR 712mn in Q1 2026 and widened from a deficit of EUR 2.0bn the year before. In 12-month terms, the deficit did, however, narrow to 0.4% of GDP after Q2 2026 from 0.7% after Q1.

Data Download

The trade deficit widened sharply to be one of the main factors behind the wider CA gap. The deficit here widened to EUR 4.6bn from EUR 3.0bn the year before. Exports rose 7.6% y/y in Q2, up from 3.3% in Q1, but imports rose a bigger 9.2%, up from 1.1%.

The NBP commented that the export growth rate was the fastest in several years in the quarter, but was lifted by strong growth in the export of computer hardware, which reached a record high and was related to an increase in the assembly of AI-dedicated servers. Raw materials exports also rose sharply in part due to historically high prices on global commodity markets. Growth in other categories (excluding fuels) was less than the export growth itself, leading to a reduced share, such as for agricultural products, means of transport, and consumer goods.

The import growth rate was also fast, lifted by a significant rise in the prices of imported goods due to fuel. Capital and intermediate goods prices also rose sharply, though the volume of imports did rise by just 1.5% y/y in Q2. Computer equipment imports accounted for much of the capital goods rise. The NBP also noted that the upward trend in imports from China accelerated, with significant growth rates for passenger cars and transportation equipment parts.

The primary income deficit widened to EUR 11.0bn in Q2 from EUR 9.6bn the year before. Dividend outflows were worth PLN 45.2bn (or some EUR 10bn). The services surplus slipped to EUR 10.1bn from EUR 10.6bn the year before. The secondary income deficit widened to EUR 734mn from EUR 6.0mn the year before.

In terms of the impact of EU funds, the positive balance was PLN 2.1bn, down from the PLN 3.8bn originally reported for Q1. This came on inflows of PLN 12.5bn (down from PLN 14.2bn in Q1), which was up PLN 2.6bn y/y. Premiums paid to the EU were worth PLN 10.4bn, the same as in Q1. The NBP added that disbursements from the Recovery and Resilience Facility (RRF) were PLN 14.3bn (PLN 1.6bn of which impacted the current account and PLN 12.7bn which impacted the capital account).

Overall, the CA deficit widened in Q2 based largely on the impact of the war in the Middle East, rising fuel and other commodity prices, the AI trade, and also as Chinese imports continue to flood in. The 12-month deficit of 0.4% of GDP is, however, quite contained. The NBP projected in July that the CA gap would be 0.9% of GDP in 2026.

• Total grain harvest is to decline 5.0% to 35.5mn tons, with basic grains down 6.2%
• Several crops are to see double-digit declines, GUS forecasts

Statistics Poland's (GUS) second food crop forecast for 2026 continues to see broad-based declines for all food crop categories, according to a statement published Wed. The total grain harvest is to decline 5.0% to 35.5mn tons, with the basic grain harvest to fall 6.2% to 25.0mn tons, GUS said. It noted that rainfall in July did improve some conditions, but did not provide sufficient water for optimal growth and thus dry, hot weather hurt yields this year.

The sugar beet harvest is expected to fall 15.5% to 15.7mn tons this year. The potato harvest is to decline 15.4% to 5.9mn tons, the field vegetable crop is to drop 4.0% to 3.9mn tons, the tree fruit harvest is to decrease 16.9% to 3.5mn tons, the rapeseed crop is to falter by 17.3% to 3.0mn tons, and the bush fruit harvest is to decrease 7.8% to 0.5mn tons.

Overall, the crop forecasts point to a lower national food supply that will, all things considered, help exert upward pressure on prices. Still, there is sizeable grain storage and that will soften the blow. Much will thus depend on how much pressure on prices is exerted by high diesel and fertilizer prices, as well as on how the regional and global crops impact the broader market, with which Poland is well integrated.

• CPI inflation accelerates to 4.0% y/y from 3.4% in Aug, highest since Jun-25
• CPI spikes 0.7% m/m vs. 0.3% rise in Aug and no change the year before
• Fuel prices leap 9.2% m/m, annual increase powers to 36.1% y/y
• Energy rises 0.9% m/m on Middle East effect too, annual rise quickens to 4.9% y/y from 4.1%
• But food/drinks inflation rises 0.1% m/m, annual reading falls 0.5% y/y
• Inflation exceeds target range for first time since Jun-25, may pave way to hikes

Polish CPI inflation accelerated sharply to 4.0% y/y in September from 3.4% in August, matching the consensus expectation, but hitting the highest level since Jun-25 and breaking out of the 1.5-3.5% range around the central bank's 2.5% target for the first time since Jun-25, according to a flash estimate published Wed. by Statistics Poland (GUS). In one-month terms, CPI jumped 0.7% m/m, compared with a 0.3% rise in August and no change the year before. The consensus was for a 0.8% m/m rise.

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Passenger fuel prices again provided the main boost on a 9.2% m/m jump. This came after the government returned VAT to 23% from the 8% to which it had lowered the rate for the final two weeks of August. The worsening situation in the Middle East also pushed up fuel prices, which remain high. In annual terms, fuel inflation accelerated to 36.1% y/y from 24.2% the month before, jumping to the highest since July 2022, or not long after Russia chose to invade Ukraine. The contribution of fuel to the headline annual inflation reading rose to 2.0pps in September from 1.3pps in August, we calculate.

Energy prices rose 0.9% m/m in September, compared with a 0.3% rise in August and a 0.2% increase the year before. The annual rise jumped to 4.9% y/y from 4.1% the month before. The rise in global energy prices due to the worsening Middle East conflict that pushed up fuel prices likely had the main impact here via liquid fuel prices. The energy component contributed 0.5pp to headline inflation in September, the same as in August, we calculate.

Food and non-alcoholic beverage prices rose 0.1% m/m in the first increase since April, compared with a 0.7% fall in August and a 0.4% drop the year before. The annual decline thus narrowed to 0.5% y/y from 0.9% the month before. We calculate that food and drinks exerted a negative 0.1-pp contribution to annual CPI in July, down from -0.2pp the month before. Low food prices have provided a lucky break to the Monetary Policy Council, to some extent, but high fertilizer and diesel prices are likely to eventually begin feeding through and such prices are unlikely to be so benign as they have been, with the question of when this will be seen in the data, not if.

The contribution of fuel, food/drinks, and energy to annual headline inflation in September vs. August was +0.8pp, which exceeds the rise in headline inflation and suggests other components helped out. In the end, we actually forecast see core inflation slowing to 2.8-2.9% y/y from 3.3% in August.

GUS will release the full CPI breakdown on Oct 14, and the NBP will release core inflation the next day.

Overall, CPI inflation's jump to 4.0% y/y will likely worry the Monetary Policy Council and could engender more hawkish commentary from council members. MPC member Ludwik Kotecki, who has sounded quite hawkish of late, has said rate hikes will be discussed at the next policy sitting in October and perhaps November will see a decision. We think that NBP and MPC chair Adam Glapinski's preference will be to hold rates through the Middle East quagmire, but that much will depend on the outlook shown in the November inflation projection update. If CPI inflation is set to be 4% y/y or above for any prolonged period, then a hike might come relatively quickly. That said, if the November inflation projection shows this inflation shock petering out, then perhaps the council will choose to see what happens with the early-year prices before moving.

• Education and transport prices drive monthly inflation to 2.11%
• Food prices rise by just 0.14% m/m, easing near-term nationwide CPI pressure, in our view

Istanbul CPI inflation eased more noticeably in September, cooling to 33.55% y/y from 35.0% y/y in August, Istanbul Chamber of Commerce (ITO) data showed. The slowdown was far more pronounced than in August, we note. That said, the monthly picture was less encouraging, as inflation accelerated to 2.11% m/m from 1.66% m/m, we underline.

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The acceleration of m/m inflation was mainly on the back of education. Education prices surged by 22.59% m/m with the start of the new academic year, following an already hefty 17.3% m/m rise in August, we remind. A second source of pressure was transport prices, up by 4.60% m/m. Miscellaneous products and services prices rose by 2.96% m/m, restaurants and hotels prices by 2.42% m/m and communication prices by 2.24% m/m. The monthly price changes in the remaining segments were more subdued, we assess. The key point for the near-term picture for nationwide CPI was the fact that food and non-alcoholic drinks climbed by only 0.14% m/m, we note, following a similarly moderate increase of 0.2% m/m in August.

The annual breakdown improved more broadly than the monthly headline suggests, we assess. Food inflation fell substantially to 29.96% y/y. Education inflation eased to 55.89% y/y despite the extremely big September monthly increase, and reflected beneficial base effects. Housing inflation eased to 39.23% y/y and recreation and culture inflation to 23.07% y/y. Healthcare inflation was still one of the most persistent categories at 43.45% y/y.

We would also like to underline a methodological flaw we noted in last month's ITO data. ITO registered a 4.3% drop in diesel costs on an m/m basis in August, whereas EPDK monthly average prices showed an 11.8% increase. So far we have not seen any explanation for this disparity by ITO. That said, ITO does not disclose its product-level price list, so we cannot tell if the problem has been fixed in the September index.

• Journalist Nagehan Alci rejects payback story, citing trusted sources
• Former AKP deputy chair faces no public questioning or legal action so far

Conflicting reports emerged about the alleged return of TRY 2.2bn linked to the transactions of the former family minister and AKP deputy chair Fatma Betul Sayan Kaya and her spouse Ilyas Kaya in Ozata Denizcilik (OZATD) shares, according to local media sources. We reported earlier that Ekonomim.com, citing its own information, said that Sayan moved the sum to a bank account designated by the Treasury and finance ministry. However, journalist Nagehan Alci, who is very close to the ruling AKP circles, has disputed the claim, stating one or two sources she trusts told her that the payback claim was wrong.

We had already approached the original allegation with caution, pointing out that the authorities did not confirm the claimed TRY2.2bn transfer. We therefore continue to regard the alleged repayment as unverified rather than an established fact.

That said, there is a lot of information noise around the recent scandal and we are trying to filter it as much as possible. We note that Fatma Betul Sayan Kaya has not been questioned or detained in connection with the allegations, and no legal action against her has been announced.

• Middle East conflict compounds weak demand, pushing new orders down faster
• Manufacturers cut production, workforce and inventory for fourth straight month
• Fuel and transport costs surge, lifting input inflation to four-month peak

Turkey's manufacturing PMI fell to 47.9pts in September from 48.1pts in August, signalling further pressure on operational conditions, S&P Global data showed. The index has remained below the 50pts mark for two and a half years with sluggish demand continuing to weigh on the industry. New orders again decreased, at a somewhat quicker rate than August, as uncertainty from the Middle East war compounded already difficult demand conditions. New export orders also decreased amid continued weak global demand, according to the report.

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The rate of output contraction accelerated from August as muted order books continued to restrict activity, with manufacturers slashing production for a fourth consecutive month. Firms continued to reduce employment, purchasing activity and inventory in response to softer demand. Overall, we take the survey as indicating no improvement in underlying manufacturing demand at the close of Q3. The repeated softening in output suggests that the sector is entering Q4 with little impetus, we assess.

Meanwhile the cost pressures continued to intensify. Input cost inflation surged to a four-month high in September as higher fuel, oil and transportation costs related to the Middle East war and climbing raw-material prices filtered through. Some of these increases were passed on to customers, pushing output-price inflation to its highest level in four months.

Manufacturing activity remained under pressure from geopolitical uncertainty during Q3, S&P Global market intelligence economics director Andrew Harker said. He still highlighted one tentative hopeful sign: the PMI averaged a little higher in Q3 than it did in Q2. We would take this with a pinch of salt though, given the September headline remained much below 50pts and both new orders and output worsened at a faster rate than in August.