Corporate profits rise at their fastest pace in several quarters, but the Middle East conflict is driving up costs

Demand is growing faster, but forward-looking signals are weakening

Sales revenue among companies covered by Statistics Poland’s F-01 reporting increased more rapidly in Q1 2026 than one quarter earlier – by 5.6% y/y, compared with 3.2% y/y in Q4 2025. The acceleration was driven mainly by domestic sales, which rose by 6.4% y/y after 3.6% y/y, and to a lesser extent by foreign sales, which increased by 2.9% y/y compared with 1.7% y/y. The strongest acceleration was recorded in business services, where sales growth reached 7.1% y/y, and in energy goods, which increased by 10.1% y/y after two years of decline. On the other side of the ledger, the fall in sales of intermediate goods deepened to -1.2% y/y, while sales of durable consumer goods declined by 7.3% y/y. Construction recorded a 3.4% y/y decrease in sales after growth of 8.4% y/y one quarter earlier. Revenue growth covered most industries – 54 out of 76 NACE divisions and 58% of all surveyed companies.

Despite faster sales growth, capacity utilisation declined again in Q2 2026, to 81.8% from 82.0% one quarter earlier, and remained below the long-term average of 82.5%. The ratio was lowest in manufacturing at 79.1%, particularly in the production of durable goods at 75.7%, and highest in transport at 85.1% and trade at 82.7%. Supply continues to exceed demand clearly in sales and procurement markets, although the imbalance narrowed slightly. Non-market services, mainly healthcare, remain the only area in which demand exceeds supply.

Labour market and accelerating automation

Employment in the non-financial corporate sector increased by 0.7% y/y in Q1 2026, after growth of 0.1% y/y one quarter earlier. The increase was not widespread, however: more companies reduced employment, at 49.7%, than increased it, at 45.0%. Employment declined only in industry, by 0.1% y/y, mainly because of mining and energy, while it grew fastest in construction, by 3.4% y/y, and trade, by 2.3% y/y.

The share of companies reporting unfilled vacancies increased slightly in Q2, to 41.2% from 40.8%. At the same time, the proportion of businesses identifying staff shortages as a barrier to growth declined again, to 3.7% from 4.4%, clearly below the long-term median of 4.9%. The way companies are addressing labour shortages is changing increasingly visibly: the share of businesses using artificial intelligence tools rose to 42% in Q2 2026 from just 14% at the end of 2024, while nearly one-third of respondents expanded their use of AI over the past year.

The highest share of companies using AI is found in services, at 46%, and the lowest in construction and trade, at 38% each. Usage increases with company size: 59% of large enterprises use AI, compared with 28% of micro and small businesses. For now, the impact of automation on employment remains marginal. Fewer than 1% of business owners say that implementing AI has enabled them to reduce headcount, most often in trade, at 1.8%, and transport, at 1.7%.

Profitability improves, but cost pressure persists

The cost-to-revenue ratio fell to 94.7% in Q1 2026 from 95.1% one quarter earlier, moving below its long-term median. Sales profitability remained practically stable, at 5.1% compared with 5.2%, while net turnover profitability increased slightly, to 4.2% from 4.1%. Both measures remain somewhat above their long-term medians. The situation also improved at the level of individual companies: the share of enterprises with positive net turnover profitability rose to 68.4%, while the proportion reporting a positive result on sales increased to 67.2%.

By sector, sales profitability deteriorated most sharply in construction, falling to its lowest level in eight years. Companies attribute this to project delays caused by the freezing winter and to rising labour and external service costs. Profitability improved markedly in mining, which returned to profit after two years of losses. Exporters’ profitability also increased for a second consecutive quarter, supported by faster sales growth and only limited growth in labour costs.

Growth in total costs accelerated to 4.9% y/y from 2.5% y/y, but remained below revenue growth. The fastest increases were recorded in the costs of goods, at 6.6% y/y, external services, at 7.1% y/y, and labour, at 6.7% y/y. Energy costs edged up by 2.6% y/y after more than two years of decline. The share of fixed costs in operating costs fell to 31.5% from 32.6%, but remains clearly above the long-term average of 28.5%. This means that a potential collapse in sales would now have a stronger impact on profitability than it has on average in the past.

Labour cost growth slowed markedly, to 6.7% y/y from 9.0% y/y one quarter earlier, mainly because average wage growth eased to 5.8% y/y from 8.6% y/y. Wage pressure reported by companies declined to 62.2% from 64.5%, while the share of businesses planning pay rises in the following quarter fell to 29.0% from 30.8%. The average planned increase stood at 4.5%, clearly below the long-term average of 5.8%.

The sector’s liquidity position remains very strong. In Q2 2026, the share of companies reporting no liquidity problems increased to 83.5%, a multi-year high. The ability to settle non-bank liabilities also reached a record level of 83.7%. The cash conversion cycle lengthened slightly, however, to 37.1 days from 36.2 days, mainly because the settlement cycles for trade receivables and liabilities became longer.

Investment: the public sector drives growth while the private sector slows

Capital expenditure on fixed assets by medium-sized and large enterprises increased by 8.7% y/y in real terms in Q1 2026, matching the pace recorded one quarter earlier but with a different composition. Public-sector investment remained the main growth engine, accelerating to 18.1% y/y from 9.9% y/y, primarily due to local-government investment supported by inflows of EU funds. At the same time, private-sector investment slowed to 6.9% y/y from 9.4% y/y. The slowdown was stronger among foreign-owned companies, where growth eased to 6.2% y/y from 9.9% y/y, than among domestically owned businesses, where it declined to 7.4% y/y from 8.6% y/y.

By industry, investment in manufacturing rebounded by 6.3% y/y after two years of decline, while transport investment accelerated sharply to 46.9% y/y, mainly due to public-sector purchases of vehicles and other transport equipment. In construction, after three years of double-digit growth, the pace of investment weakened significantly to 3.9% y/y. Large companies increased investment by 9.1% y/y, while the SME sector slowed markedly, to 8.2% y/y from 17.6% y/y one quarter earlier.

Despite slower growth in some segments, investment sentiment improved in Q2 2026. The OPTIN indicator rose to 37.0% from 35.8%, above its long-term average of 35.4%. Public enterprises reported record optimism, with OPTIN at 63.5% compared with a historical average of 53.5%. Domestic private-sector companies maintained plans close to historical norms, while foreign-owned companies remained significantly more cautious. The estimated value of newly launched investment projects nevertheless fell to its lowest level in a decade, declining by 21.6% y/y in nominal terms. Companies partly attribute this to adverse weather conditions that disrupted construction work.

Prices rise faster, while inflation expectations ease

Output prices in the non-financial corporate sector increased by 1.7% y/y in Q1 2026, compared with 0.7% y/y one quarter earlier. This was mainly due to a slower decline in industrial prices, which fell by 0.8% y/y after a 2.4% y/y decrease. Price growth accelerated most strongly in construction, to 5.4% y/y, information and communication, to 3.1% y/y, and transport, to 2.7% y/y. Partial data for Q2 indicate that industrial producer prices began to rise after nearly three years of decline. In April and May, annual growth reached 2.1% and 2.4%, respectively, mainly because of a sharp increase in energy goods prices, which rose by 14.1% y/y in May, including a 37.2% y/y increase in coke and refined petroleum products.

The NBP Quick Monitoring Survey suggests that price pressure is building. The share of companies raising prices increased for a second consecutive quarter, to 24.1% from 19.0%, while the price pressure indicator stood clearly above its long-term average. The proportion of businesses expecting their own prices to rise in the following quarter increased to 55.8% from 53.6%. Despite this, the balance statistic for CPI inflation expectations over a 12-month horizon declined markedly, to 35.7 points from 46.4 points one quarter earlier, although it remained above its long-term average of 32.6 points. The decline occurred even though respondents raised their reference inflation rate to 3.2% from 2.2%, indicating a genuine easing of expectations rather than merely a statistical effect.

Middle East conflict: a real but still limited impact

The armed conflict in the Middle East emerged as one of the main topics of the survey. In Q2 2026, 17.1% of companies assessed its impact on their situation as clearly negative, while a further 43.2% described it as slightly negative. In total, more than 60% of businesses are feeling the effects of the war. The impact is stronger among companies operating in foreign markets, at 21%, than among those active exclusively in the domestic market, at 13%. Transport is the most affected sector: 36% of companies in the industry reported a clearly negative impact, reflecting its high sensitivity to fuel prices. Manufacturing is also experiencing significant effects, at 22%, followed by trade at 16% and energy at 12%, while services remain relatively less sensitive, at 6%.

The main transmission channel of the conflict is higher operating costs. Fuel and energy prices were cited by 46.8% of companies, while 16.7% pointed to the prices of raw materials and components. As a result, 12.7% of surveyed businesses raised the prices of their products or services directly in response to the geopolitical situation. Overall, 40% of companies took adjustment measures, most often renegotiating cooperation terms with business partners, at 13%, or raising prices, also at 13%. Fewer businesses reduced investment, at 9%, or scaled back operations, at 3%. Most companies, at 73%, assume that the effects of the conflict will be short-lived and fade within six months after it ends. Should the war continue, however, 54% of companies already plan adjustment measures, most commonly further price increases, at 23%.

Despite these tensions, the overall assessment of the current economic situation remains favourable. Some 61% of companies describe it as good or very good, while only 6% assess it as bad or very bad. Rising costs of raw materials, energy and fuels nevertheless remain the most frequently cited barrier to growth, mentioned by 13.3% of companies. The geopolitical situation ranks second, at 9.4%, although its importance has declined slightly.

Credit and financing: demand weakens, while debt-servicing quality reaches a record high

Corporate-sector debt from loans and advances increased slightly faster at the end of Q1 2026 than one quarter earlier, rising by 1.6% y/y compared with 0.8% y/y, mainly because of short-term financing. Debt grew fastest in the SME sector, by 6.1% y/y, while it remained practically stable among large companies, declining by 0.1% y/y. Debt increased in transport, by 10.0% y/y, services, by 7.9% y/y, and trade, by 6.1% y/y, while it fell sharply in construction, by 21.0% y/y, and industry, by 2.4% y/y. Faster growth in external financing than in assets raised the sector’s overall debt ratio to 52.1%, above its long-term average of 51.9%.

Demand for new bank financing is weakening. The share of companies applying for credit declined to 12.4% from 12.6%, while the balance of forecasts for credit demand in the following quarter fell to 13.8 points from 15.3 points, below its long-term median. Credit availability deteriorated slightly, with the share of approved applications declining to 84.5% from 85.5%. The public sector was affected most strongly, with its approval rate falling to 74.7% from 82.9%. Insufficient creditworthiness remains the main reason for rejection, accounting for 52.4% of refusals. Nevertheless, debt-servicing quality is very high and continues to improve: 95.5% of companies repay their bank liabilities on time, clearly above the long-term median of 94.4%.

What this means for companies and investors

The picture emerging from the July edition of the NBP Quick Monitoring Survey is mixed. On the one hand, companies are recording significantly better financial results than a year ago, benefiting from very strong liquidity and record-high debt-servicing quality, while public investment supported by EU funds continues to grow rapidly. On the other hand, demand for labour and credit has been weakening for four consecutive quarters, private and foreign investment is slowing markedly, and the Middle East conflict, although it has not yet triggered panic, is steadily increasing procurement costs and prompting more companies to raise prices. The key question for the coming quarters is whether the observed weakening in demand for investment and labour will prove temporary or signal a more persistent slowdown in economic activity during the second half of 2026.

The survey data come from the NBP Quick Monitoring Survey conducted in May and June 2026 among 2,493 companies and from the NBP Annual Survey carried out at the turn of April and May 2026 among 1,913 businesses. The financial data come from Statistics Poland’s F-01/I-01 reports covering 17,142 companies employing at least 50 people, as at the end of March 2026. The article was prepared on the basis of the NBP Quick Monitoring Survey report No. 03/26, July 2026, published by Narodowy Bank Polski’s Economic Analysis and Research Department.