This is the economic trendsetter of Europe

The Polish economy performed much better than other major European countries in 2024. This will not change in the current year. Despite unrest on the trade front, the zloty is continuing its advance for the time being.

Donald Trump’s trade rhetoric is attracting a lot of attention on currency markets. Earlier this week, he announced new import duties on goods from Mexico and Canada, but those measures were postponed almost immediately. Trump is now setting his sights on Europe. Due to the possible trade restrictions, economic growth in the eurozone could well be less than 1% for the third year in a row. A major reason for the weak growth is the faltering of the German economy as the economic engine of Europe. A little further east, Poland is attracting positive attention. With a growth rate of 2,9%, the country came very close to its own target of 3,0% last year.

Well over lower bar
Last year, the bar for the growth target was set too high. There is a good chance that Poland will convincingly overcome this hurdle next year. The income growth of the working population in 2024 was a bit higher than the economic growth. Households spent more money thanks to the higher incomes, but also chose to put extra money aside in the savings account. That is not so strange when you consider that the Polish savings interest rate is still somewhat higher than in the Netherlands and surrounding countries. The difference can be traced back to the policy interest rate of the central banks. While the Narodowy Bank Polski sees no reason to tinker with the interest rate for the time being, the European Central Bank (ECB) lowered the most important rates by 0,25 percentage points last week.

Interest rate differential is increasing
The ECB is also preparing for a new interest rate cut at the meeting in early March. With a lower interest rate, the central bank wants to stimulate the very weak economic growth rate in the eurozone a little. A lower interest rate makes it more attractive for companies and consumers to borrow money for new investments and purchases. In Poland, this is not necessary for the time being. In the current year, the country is heading for a growth rate of around 3,5%. The interest rate difference compared to the eurozone is a tailwind for the zloty. The higher the policy rate, the more attractive it becomes for parties to hold assets in the currency in question.

All signals are green
For the zloty, all signals are green for the time being. Despite the international trade unrest, the Polish currency has risen by one percent against the euro since the turn of the year. Over the period since the beginning of November, that gain even amounts to more than 3%. Despite all the favorable signs, it is a bit early to already designate the currency as the big currency winner for the current year. The zloty is namely vulnerable to economic and geopolitical shocks. Both during the corona panic of 2020 and after the Russian invasion of Ukraine in 2022, the currency briefly dropped by 10%. That damage has been convincingly erased by the zloty in recent years: the currency is at its highest level in more than five years.

Joost Derks

Joost Derks is a currency specialist at iBanFirst. He has over twenty years of experience in the currency world. This column reflects his personal opinion and is not intended as professional (investment) advice.

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