Poland remains a rare dynamic among the European economies of a specific size. With its domestic market in complete confidence and significant levels of investment that will continue to be supported by disbursements from the European Union, it is one of the oldest continent's most promising economies. We are interested in its economy and stock market, the prospects of which are interesting.
A dynamism that does not fade
Poland has just experienced a good year in 2024, with growth of around 3%, and is set to experience an acceleration in 2025 and 2026, with even higher growth rates.
The driving force behind this growth is a very dynamic domestic market. The labour market is at full capacity (unemployment is only 3.0%), and wages are moving faster than inflation. A year ago, the minimum wage was up 18%, and public service wages were up. At the end of 2024, the average 12-month wage increase was close to 10%. Even if inflation is still high, with an order of 3.9%, purchasing power is thus in sharp increase.
This is not a new phenomenon: Years of strong growth – and productivity gains well above the OECD average – have helped to improve people's living standards to the point where Poles are now more serene and content with their well-being.be as many other Europeans.
In addition, an expansionary fiscal policy has been pursued in recent years, with a budget deficit of almost 5% of GDP over 2022-2024, which has helped finance a strong wave of investment. Over the same period, it grew by almost 5.5% on average and is expected to accelerate further in 2025 as the EU increases its disbursements to this country.
Of course, the lax fiscal policy will have to lead to better-balanced public finances sooner or later. However, this consolidation should be gradual without putting too much pressure on growth. First, at 53.5% of GDP, Poland's public debt remains well below the levels experienced by most eurozone economies, giving Warsaw room for manoeuvre that others do not have. Secondly, the Polish central bank, whose key rates are still at 5.75%, should be able to lower them gradually, stimulating economic activity.
The internal market is a significant asset
The dynamism of the Polish internal market is a significant asset at present. With the return of Donald Trump to the White House, global trade is likely to be under enormous pressure. Countries heavily dependent on US exports (but not that, since Washington also targets sales of specific goods and services to other markets, such as China or Russia) will be suspended due to the mood changes of the American President. They may, therefore, face a period of intense turbulence, which is not conducive to investment decisions or long-term decisions.
In these circumstances, a dynamic domestic market and reduced export dependence are the best ways to avoid uncertainty. This is the case in Poland. Demand on its domestic market is, at this stage, much more potent than that on its main export markets in Western Europe, and the country has a slight trade deficit. In addition to this, the authorities in Warsaw are willing to adhere to the 5% of GDP in military spending wanted by Donald Trump, and we have a market that should fit well with the new occupant of the White House.
Towards a peace dividend?
One of Donald Trump's campaign promises is the end of the war in Ukraine. However, a peace agreement would be excellent news for Poland.
Beyond the geographical proximity, which makes it a hub of choice for trade between Ukraine and the West, there are important historical and commercial links between the two countries.
As such, many of which remain in Ukraine despite the war, Polish companies are ideally positioned to participate in the country's reconstruction and target sectors such as energy, infrastructure or public services. Poland should, therefore, be among the great winners of peace.
A small purse, but very promising
Exposure to Poland offers advantages, including the valuation levels of the Warsaw stock exchange.
The price/earnings ratio of the MSCI Poland index is close to 10. The latter is also generous regarding dividend yield, close to 6%. At these levels, the Polish stock exchange is much cheaper than others. The price/earnings ratio of MSCI's emerging markets is over 15x, and the dividend is less than 3%.
Limited exposure to this market is therefore tempting. However, it is a relatively small market (capitalisation of around €350 billion at the end of 2024), heavily concentrated on the financial sector, which accounts for just over half of the index. Therefore, it carries a higher-than-average level of risk. However, limited to 5% in a well-diversified portfolio with increased exposure to bond markets, this risk remains manageable for us, including from the perspective of investors with high-risk aversion.
Given the range of opportunities it offers at this stage, we are investing in Poland as part of all our diversified portfolios.