Wojciech Kość in Warsaw -

Poland’s main opposition party Law and Justice (PiS) looks to have scored its first election success since 2007, with Andrzej Duda edging out incumbent Bronislaw Komorowski in the race to the president’s office, according to exit polls released late on May 24.

The survey suggests Duda scooped 52% of the second round run off, leaving Komorowski, who ran with the support of the ruling Civic Platform (PO), on 48%. The president's defeat is widely seen as a pointer towards general elections in the autumn, and PiS will hope it can help kick-start a major shift in Polish politics after two terms in office for the centre-right PO.

Duda’s victory is expected to give the populist, conservative party new wind in its sails ahead of October's parliamentary vote. A win for PiS would likely lead to a number of fundamental changes in Poland, including re-orientation of foreign policy away from Brussels and towards the US, higher social spending, and unwinding of liberal social policy passed by PO.

Using the president’s powers, Duda can propose his own legislation, and will now also be able to put a brake on PO initiatives by wielding his veto. However, the ruling party is likely to move its policy closer to the challenger's populist agenda on its own in the coming months.

That's certainly a fear for the markets. During election night, the zloty weakened nearly 1% against the euro. Meanwhile bond yields have spiked in recent weeks, as investors worry that PiS may win office, or that PO will be forced into populist guestures that will impact on fiscal management. 

Komorowski had proposed during the campaign that recent reform raising the retirement age be pushed back. Duda’s win - seen as almost unthinkable before his surprise first round vote on May 10 - will now serve as an alarm bell for the ruling party as it prepares to fight to extend its eight years in power.

While that time has been marked by strong macroeconomic performance - Poland was  the only EU state to avoid falling into recession in 2009 - PO has failed to ensure growth penetrates more deeply than the major cities. Rural Poland, where PiS finds its power base, has meanwhile suffered rampant unemployment and low wage growth.

In a bid to court that constituency, both presidential candidates resorted to promises that would make a finance minister blanche. While Komorowski was busy suggesting the dismantling of PO's hard fought pension reforms, Duda addressed the issue of Swiss franc mortgages.

The PiS man said he will push for loans to be converted to zloty at historical rates. While that would prove hugely popular with the 550,000 or so borrowers that have seen their monthly installments spike since the Swiss currency rallied in January, it would hit lenders hard. The PO government has said it will not insist on a solution that threatens the stability of the banking system. Duda has also spoken of curbing foreign bank ownership, which is currently at 70%, and voiced support for a new tax on bank assets.

The likely new president is also in favour of raising the income tax threshold from the current PLN3,091 to PLN8,000, and to award benefits of PLN500 per child. His campaign promises are estimated by the finance ministry to to cost around PLN400bn, although they're extremely unlikely to be implemented under a PO government.

Duda has not explained how his promises could be financed. PiS only said that “the money is there”. 

Unsurprisingly, Finance Minister Mateusz Szczurek suggests the opposite. “The room for extra spending, be it pre-election or any other type, is actually quite limited,” he said on May 19. Szczurek earlier this month led Poland out of the EU's excessive deficit programme for the first time in six years as Brussels accepted that fiscal plans will push the budget gap below 3% this year.

The European Commission may not have twigged the implications of the presidential election, but others clearly do. Investors worry that the tightened race for the October vote could derail Szczurek's efforts. The zloty is the third-worst performer against the euro among 24 emerging-market currencies since Duda won the first round of the presidential election on May 10.