June's industry and construction data saw solid gains, with second-quarter momentum building despite both turmoil in the Middle East and higher oil prices. At the same time, wage and employment data reflects a balanced labour market contributing to disinflation. Still, renewed tensions in the Persian Gulf are adding a fresh layer of uncertainty.
Industry outperforming regional peers, but growth remains uneven
Poland’s industrial output increased by 7.6% year-on-year in June, up from 4.1% YoY in May. Domestic industry appears to be weathering global headwinds stemming from higher oil prices and mounting competitive pressure from Asia better than many of its European peers. At the same time, we see signs of a K-shaped rebound and an uneven recovery, with some manufacturing divisions performing well while others, including old export leaders, continue to struggle.
Strong growth was recorded in sectors reflecting expanding public investment and defence spending (e.g., machine repairs), export sectors like the manufacturing of other transport equipment (+24.9% YoY), paper and paper products (+19.0% YoY), and waste collection, treatment and disposal (+16.5% YoY). By contrast, output declined in the manufacture of tobacco products (-10.2% YoY), textiles (-7.0% YoY), and furniture (-2.5% YoY), while competitive pressure from Asian producers continues to intensify.
The June ceasefire between the US and Iran, and the resulting decline in oil and natural gas prices, eased pressure on producer prices last month. PPI inflation slowed to 1.7% YoY from 2.4% in May. Producer prices are no longer in deflation, but the return to positive inflation largely reflects the initial energy shock linked to the Gulf conflict, while some sectors continue to reflect disinflationary trends. The conditions deteriorated again in July, however, which may weigh on manufacturing performance in the coming months and push PPI inflation higher once more.
Construction up, driven by advanced public investment cycle and growing civil engineering
The construction output increased by 5.2% YoY in June, following a 3.9% YoY rise in May, as the sector continues to recover from adverse weather conditions at the beginning of the year that led to double-digit declines in production. The inflow of EU funds from the Recovery and Resilience Facility (RRF) and cohesion policy programmes is supporting public investment.
In June, we observed strong growth in infrastructure investment, with civil engineering output rising by 18.7% YoY. At the same time, specialised construction activities and building construction recorded declines. The latter most likely reflects weakness in residential construction, where an overhang of unsold dwellings remains close to 6 months of sales vs multi-year average at 3.
Nevertheless, 2Q26 brought a marked improvement in the construction sector, with output increasing by around 4.5% YoY following a sharp decline of 8.0% YoY in 1Q26. This suggests that investment activity gained momentum after a weak start to the year, although it likely remains more buoyant in the public sector than in the private sector.
Labour market showing signs of softening despite overall tightness
Wage growth remained below 6% YoY for the third consecutive month, reaching 5.9% YoY in June, while employment in the enterprise sector continued to decline (-0.9% YoY). Softer wage growth was particularly evident in services, including accommodation and food services, transport and logistics, and IT.
Wage pressures are easing, and business surveys indicate a decline in the share of companies planning wage increases, as well as smaller planned pay rises. Employees' bargaining power has weakened as labour demand has softened in some sectors.
Diminishing wage pressures would be welcomed by monetary policymakers, as the labour market is no longer a significant source of inflationary pressure. Wage growth is currently broadly consistent with core inflation stabilising around the central bank's target. The labour market is no longer pro-inflationary and may even contribute to easing inflation pressures going forward.
Bottom line
Despite the outbreak of conflict in the Middle East, this year's second quarter has turned out to be an improvement from the first for Polish industry and construction. Activity in retail trade and services was presumably softer than at the beginning of the year, but the overall picture emerging from the available data is positive nevertheless.
GDP growth, both in annual terms and on a seasonally adjusted quarter-on-quarter basis, was probably stronger in 2Q26 than in the previous quarter, posing upside risks to our 2026 growth forecast of 3.4%. Given the scale of the geopolitical risks involved, we maintain our cautious forecast. However, it appears that the negative impact of the conflict between the US and Iran (alongside the blockade of the Strait of Hormuz) on economic activity and inflation in Poland has been less severe than previously feared.
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