Ukrainians to keep propping up Poland's labour market, Fitch says

By Karol Badohal and Gergely Szakacs

WARSAW (Reuters) -Most Ukrainian refugees living in Poland are likely to stay there even if Ukraine reaches a ceasefire deal with Russia, meaning they will continue to prop up the Polish economy, where the public finances remain a key concern, according to Fitch Ratings.

Poland, one of Ukraine's Western neighbours, is still host to about 1 million Ukrainian refugees who fled after Russia invaded their homeland in February 2022. They have helped fuel Poland's tight labour market and boost economic growth, according to observers, a trend Fitch sees continuing. 

"We don't see that that's going to change much because they are very well-integrated into the Polish labour market. So even if there was a ceasefire tomorrow, we really don't see that many Ukrainian refugees coming back to Ukraine," Milan Trajkovic, Fitch Ratings' analyst for Poland told Reuters.

"We are pretty much certain that a big percentage of these people is actually going to stay in Poland and contribute to the Polish labour market and GDP growth and, of course, other macroeconomic and fiscal variables," he said.

Fitch analysts forecast Poland's economic growth at 3% in 2025, 3% in 2026 and 3.1% in 2027. The Polish government expects the growth of 3.4%, 3.5% and 3.0% respectively.

As well as the million or so refugees, anywhere from several hundred thousand to more than 1 million more Ukrainians were living in Poland before the war, according to various estimates.

Poland is counting on its growing economy to help it tame a bloated fiscal deficit, which came in at 6.6% of economic output last year, missing the government's 5.7% target for the year set out in its fiscal consolidation plan. It has pledged to bring the shortfall down below 3% by 2028.

"The biggest risk...from the rating perspective would be the failure to implement the fiscal consolidation plan leading to the stabilization of the public debt. And this is our main negative rating sensitivity," Trajkovic said.

Trajkovic called Poland's deficit miss for 2024 "a much worse starting point."

He cautioned that fiscal rigidities such as social spending and public wages, which accounted for the biggest increases in government outlays, in addition to military spending and growing interest payments, made lowering the shortfall harder.

"For this year, we are projecting the deficit to remain the same at the level of around 6.6%... We see it coming down to around 4%, maybe 4.5% of GDP by 2028."

Poland's debt should stabilise at around 65% of GDP in 2028 or 2029, according to Trajkovic. Brussels expects governments around the EU to target deficits of no more than 3% of GDP and public debt equivalent to no more than 60% of economic output.

He said however that Poland's solid track record in state finances still worked in its favour, adding that its external balance sheet has helped it keep its "A-" rating.

Fitch is scheduled to publish its rating review for Poland on September 5.

"We don't see Poland as a country that would suddenly give up its prudent economic policymaking for a long period of time. And I think the markets share that view as well," he said.

"It's the highest-growing European economy for decades now. And ... one thing you know about Poland is, Poland is going to grow."

(Reporting by Karol Badohal and Gergely Szakacs; Editing by Hugh Lawson)