How Stable is Poland’s Economic Success?

Poland continues to benefit from one of the most remarkable processes of economic convergence in modern Europe: the OECD notes that GDP per capita has doubled over roughly two decades, helped by productivity gains, foreign investment, integration into European supply chains and rising labour participation.

But how stable is Poland’s economic success?

The answer depends partly upon what we mean by stable.

The economy is growing faster than most of its European neighbours. Unemployment remains low, investment is pouring into roads, railways, energy, defence and industrial projects and household consumption has remains resilient. Yet at the same time the state is running a deficit of a size normally associated with recession.

The latest European Bank for Reconstruction and Development forecast captures the contradiction neatly. The EBRD expects Polish GDP to grow by 3.5% in 2026, after 3.6% last year, before slowing to 2.8% in 2027. It points to strong domestic demand, EU-financed investment and rapidly rising defence expenditure as important supports to growth. But it also expects the general-government deficit to remain close to 7% of GDP and public debt to rise towards 65% of GDP.

There is little in the current numbers to suggest an economy about to implode. The European Commission also expects growth of 3.5% this year, with unemployment around 3.1%. It forecasts inflation at 3.6%, before easing in 2027. Not crisis numbers.

But the present growth rate contains a temporary element which is easy to mistake for something permanent.

A large part of the current investment boom comes from European money. Poland is racing to absorb funds from the EU’s Recovery and Resilience Facility before the programme expires, while other cohesion and infrastructure funding continues to feed investment. The EBRD explicitly identifies the peak absorption of RRF funds as one of the main reasons growth remains strong this year. The Commission makes the same point: investment is providing an increasingly important contribution to GDP growth, while private consumption is expected to slow as real-income growth moderates.

That matters because EU money is not a permanent fiscal engine.

In 2027, the Commission expects the fiscal stance to become contractionary as RRF spending drops away. Growth falls in its forecast from 3.5% to 2.8%. The OECD is slightly more cautious still, currently forecasting 3.0% growth in 2026 and 2.6% in 2027, citing the peak in EU-funded investment, external weakness and higher energy costs.

The question is therefore not whether Poland is growing. The harder question is what takes over when the extraordinary investment cycle fades.

There is another unusual motor running at the same time: defence.

Poland is now spending close to 5% of GDP on defence, an extraordinary level by European standards. Some of this is imported equipment and therefore contributes little directly to domestic production. But an increasing amount involves Polish manufacturing, infrastructure, logistics and associated investment. The EBRD therefore treats defence expenditure not simply as a fiscal cost but as one of the short-term supports to economic activity.

This produces another paradox.

The very spending helping sustain growth is also contributing to the fiscal problem.

Poland’s deficit did not emerge because the economy collapsed and tax receipts disappeared. The IMF’s diagnosis is almost the opposite. It argues that Poland has maintained rapid growth partly at the price of a sharp deterioration in its fiscal position. Higher defence spending has been accompanied by expanded social benefits, higher public-sector remuneration and increased spending on health and other services. The IMF estimates that the widening deficit since 2021 is explained by higher expenditure rather than falling revenues.

Large deficits during a deep recession can disappear naturally when an economy recovers.

A large deficit while the economy is already growing strongly is different. It suggests that a substantial part of the deficit is structural.

The European Commission expects Poland’s general-government deficit to fall from 7.3% of GDP in 2025 to 6.5% this year and 6.3% in 2027. Even after that improvement, it would remain more than twice the EU treaty reference level of 3%. Debt, meanwhile, is forecast to rise from 59.7% of GDP in 2025 to 64.5% this year and 68.3% in 2027.

That is not a prediction of insolvency, but it is a trajectory.

The IMF’s longer-range calculation is more uncomfortable. Under existing policies, it projects public debt rising to around 78% of GDP by 2031. Its recommendation is a cumulative fiscal adjustment of roughly four percentage points of GDP sufficient to reverse the upward debt path.

Brussels is already applying pressure in the same direction. Poland has been under the EU’s excessive-deficit procedure since 2024. The Council has recommended that the excessive deficit be corrected by 2028, with increasingly tight limits on the growth of net public expenditure.

The Polish budget itself does not currently look as though revenues have collapsed. Through August, state-budget revenues were 387.2 billion złotys, 6.7% higher than in the same period of 2025, while tax receipts were up 6.8%. CIT revenues were almost 30% higher. But spending reached 538.3 billion złotys, leaving a state-budget deficit of 151.1 billion złoty after eight months. That is a different accounting measure from the EU general-government deficit, but it illustrates the underlying problem: income is rising, but expenditure is rising from a very high base.

This is where Poland’s economic debate becomes politically difficult.

It is easy to say that the deficit should fall, but considerably harder to say how.

Defence expenditure is unlikely to fall sharply while the war in Ukraine continues and Poland remains focused on deterrence. Health spending faces demographic and political pressure to rise rather than fall. Pension and ageing costs will become more demanding over time. Social transfers have become embedded in household expectations. Public-sector wages cannot easily be compressed indefinitely when the private labour market remains tight.

The IMF puts the dilemma unusually plainly: if Poland wishes to retain something approaching the present level of social, defence and public-service expenditure, it will eventually have to collect more revenue. Otherwise it needs a leaner state and more selective spending.

There is also a longer-term growth problem lurking beneath the unusually strong headline numbers.

Poland cannot converge with richer Western European economies forever at the pace it has managed over the last twenty years. The OECD expects productivity convergence gradually to slow. The working-age population is ageing. Labour shortages are becoming structural. Innovation remains weaker than in many richer EU economies, while private investment has at times been held back by uncertainty, high financing costs and the proximity of war.

At the same time, Germany – still an extraordinarily important market for Polish industry – remains weak. Both the EBRD and Commission identify subdued external demand as a brake on Polish exports. The present growth model is therefore unusually dependent on domestic demand, EU money and public investment rather than a powerful export cycle.

None of this means that Poland’s economic rise is an illusion. The country’s economic base is much stronger than it was twenty years ago. Its labour market has proved resilient through the pandemic, the energy shock and Russia’s invasion of Ukraine. Investment needs remain enormous. European integration continues to supply capital and markets. Defence expenditure may also generate a larger domestic industrial base than Poland possessed previously.

But it does suggest that there are two Polish economies visible in the same statistics.

One is the Poland of extraordinary convergence: growing around 3–4%, building infrastructure, attracting capital, raising wages and steadily approaching Western European living standards.

The other is a state attempting simultaneously to finance defence on a wartime scale, maintain increasingly expensive social commitments, improve public services, modernise the energy system and absorb one of the largest investment programmes in Europe.

For the moment, growth allows both stories to coexist. It may even conceal the tension between them. The real test comes after the EU investment peak passes.

If private investment, productivity and domestic industry increasingly replace the extraordinary injection of European funds, Poland can probably continue growing faster than Western Europe while gradually repairing its public finances.

If they do not, something will eventually have to give: spending, taxes, borrowing, or growth itself.

The danger is probably not an imminent crisis.

It is something more prosaic: that an economy accustomed to unusually rapid growth discovers that some of the money currently making everything possible was temporary – while many of the promises made with it were not.