Poland's Deficit Is the Risk Central European Markets Are Not Pricing

Poland is funding its reindustrialisation and its rearmament with debt, at a pace the region has not seen since joining the European Union. The general government deficit stood at 7.3% of gross domestic product in 2025, the second highest in the Union behind Romania, against a European average of 3.1% 1. Only Romania fared worse, at 7.9% 1. The overshoot is not cyclical: the budget act projected 6.9% 1. The drivers are identified and durable, namely military equipment deliveries, public sector wages and social benefits 1. The conclusion for an allocator is direct: in this region you buy the equity, not the debt.

The bond market is not yet paying for that trajectory. The Polish ten-year sovereign yield stands at 5.51%, against 2.97% for its German equivalent 23. A gap of two and a half points may look generous. Set against a deficit twice the European average and a drift that exceeds the official path, it compensates a flow risk, not a solvency risk, and it assumes the second will never appear.

The objection is solid and quantified. Polish public debt stands at 59.7% of gross domestic product, far below the European average of 81.7% and below the threshold set by the treaties 1. The stock remains sound. It is the flow that worries: debt has risen by nearly eleven points since 2022 1. At that pace, the room for manoeuvre disappears within a few years.

The bottom line

Central European exposure belongs in equities and domestic banks, which hold high sovereign yields in their portfolios, rather than in long-dated Polish sovereign debt. The country remains solvent; it is bondholders who are underpaid for funding it. Poland's deficit is not an argument against Central Europe: it is an argument against its sovereign bonds. The spending it funds shows up in the order books and earnings of listed companies, not in the coupon.

What to watch: the budget path presented this autumn. A deficit once again above the official projection would confirm that the drift is structural rather than tied to the rearmament schedule alone.