Poland’s divided electorate has delivered a blow to the governing coalition, but not yet to the country’s economic momentum. The narrow victory of conservative opposition candidate Karol Nawrocki in the June 1 presidential election ensures continued institutional deadlock, yet markets remain unfazed.

The Polish GDP per capita has more than doubled since it joined the EU. In the 2008 crisis it was one of only two countries that didn’t go into recession. (Uzbekistan was the other). And while the EU member states are facing around 1% growth this year, thanks to the boomerang effects of Russian sanctions, Poland is on course to grow by 3.2%-3.4%, according to the International Financial Institutions (IFIs). Increasingly, Poland is becoming an economic powerhouse in Europe that can alleviate Germany’s decline as the former engine of European growth.

Investors are increasingly buying into Poland’s bright future. The iShares MSCI Poland exchange-traded fund was unchanged following the result, retaining a 47% gain year to date. The Polish zloty rose 0.5% against the dollar. “Short-term economic growth prospects remain unchanged,” said Rafal Benecki, chief Polish economist for ING in a note.

But the presidential result all but guarantees vetoes on key reform proposals by Prime Minister Donald Tusk’s Western-leaning government, including changes to abortion rights, media governance and judicial independence. “What’s stuck in no-man’s-land now are abortion rights, control of state media and the judiciary,” said Eoin Drea, senior researcher at the Wilfried Martens Centre for European Studies, as cited by Barrons.

On economic policy, however, a longstanding consensus remains intact. “There has been a sort of Polish consensus no matter who is in charge,” said Mateusz Urban, senior economist at Oxford Economics. “Lots of investment in infrastructure, openness to foreign direct investment, relatively business-friendly taxes.”

Poland’s GDP per capita has surged from 20% of US levels in the 1990s to 60% today, Urban noted. Growth is expected to hover around 3% for 2024 and 2025, with consumption supported by high household savings and real wage growth.

European Union support also continues to underpin the economy. Poland has received around €160bn ($183bn) in EU funding over the past two decades and continues to receive an average of €12bn a year in EU structural grants – more than three-times what Ukraine used to receive from the International Monetary Fund (IMF) pre-war as part of its Extended Fund Facility (EFF). In 2024 alone, the EU released €6.3bn to Poland from the post-pandemic recovery fund – the largest single transfer to the country since it joined the club. Those subsidies have supercharged the economy.

The EU money has been pivotal in supporting infrastructure development, agriculture, and regional cohesion projects across the country between 2004 and 2023:

• Cohesion Policy Funds: Approximately €161bn (about 66% of total funds) were allocated to reduce regional disparities and enhance infrastructure.
• Common Agricultural Policy (CAP): Around €76bn (about 31% of total funds) supported Polish farmers and rural development.
• Other: The remaining 3% funded various programmes, including environmental protection and migration initiatives.

In the same period, Poland contributed €83.7bn to the EU budget, resulting in a net gain of approximately €162bn.

“Warsaw pursued a politically clever strategy,” Drea said. “They were supportive on just enough issues to keep the EU money flowing.”

Much of that funding is earmarked for infrastructure and rural development—areas likely to remain apolitical in the new regime. Poland’s strategic importance to European defence plans after the launch of European Commission President Ursula von der Leyen’s ReArm programme will also secure its access to more EU money; Poland is planning to spend 5% of its GDP on building up the largest conventional army in Europe at a time when the whole of Europe is refocused on boosting security. State broadcaster TVP reported that Poland is in line for a €30bn loan from the new €150bn Security Action for Europe fund approved on May 27.

Still, Poland is facing some headwinds and after sharply increasing its defence spending since Russia’s invasion of Ukraine, is running budget deficits of nearly 6% of GDP, unsettling analysts.

“They are starting to play with fiscal fire,” Urban warned. Public debt remains below 60% of GDP but is trending higher.

Tusk’s proposal to raise the retirement age to reduce fiscal pressure is now likely to be blocked. Meanwhile, structural challenges are mounting. “Effective hourly wages jumped 40% from 2019–2023,” Urban said. “They are getting quite expensive relative to what the firms are producing.”

The investment required to move up the value chain is not forthcoming. Polish businesses have been reluctant to invest, often because of unstable institutions and macroeconomic uncertainty, and that is likely to get worse in the next two years as the dog fight between the liberal Tusk camp and conservative Law and Justice (PiS) which is backing Polish president Karol Nawrocki intensifies.

Mellow concluded: “Warsaw can’t withstand 6% deficits and double-digit wage increases forever. But it can for a while longer.”