Exporters are going strong

Statistical effects limited production growth

In accordance with the Polish Central Statistical Office's (GUS) data, the dynamics of sold production of industry in enterprises employing more than 9 people dropped to 5.0% YoY in August vs. 10.3% in July, running below the market consensus (5.2%) and our forecast (5.5%). Seasonally-adjusted industrial production increased by 0.5% MoM. The main factor behind the decrease in industrial production dynamics between July and August was an unfavourable difference in the number of working days (in July 2018 the number of working days was one day higher than in 2017 while in August 2018 it was the same as last year). The lower dynamics of industrial production in August resulted also from the last year's high base effect (in August 2017 seasonally-adjusted production increased by 3.2% MoM).

Exporters are going strong

The structure of the August production suggests the continuation of the wide range of recovery in branches with a sizeable percentage of exports in sales ("other transport equipment” (30.5% YoY in August vs. 20.6% in July), "machinery and equipment” (17.7% vs. 25.0%), and "electrical equipment” (16.6% vs. 17.5%)). These branches recorded high production dynamics despite the aforementioned statistical effect in the form of unfavourable difference in the number of working days. The continuing strong production growth in the export-oriented branches is good news in the context of the slowdown in global trade observed from the beginning of 2018. However, the August business survey results for Polish manufacturing (PMI), which suggested the strongest since July 2014 decline in new export orders, signal high risk of deceleration of production growth in export-oriented branches in subsequent months (see MACROmap of 3/9/2018).

Continuously high growth rate of public investments

According to GUS data, the construction-assembly production dynamics increased to 20.0% YoY in August vs. 18.7% YoY in July. The production growth rate has increased despite the above-mentioned statistical effect in the form of an unfavourable difference in the number of working days. The increase in construction-assembly production dynamics between July and August resulted mainly from the abatement of the last year's high base effect (construction-assembly production rose by 4.6% MoM in July 2017), which strongly limited the annual production growth rate in July 2018. Seasonally-adjusted construction-assembly production increased in August 2018 by 1.6% MoM. Especially noteworthy in the construction-assembly production structure is its sharp increase in the category "civil engineering facilities” (30.5% YoY in August vs. 20.6% in July). This is consistent with our view that the growth of public investments in the infrastructure peaked in Q1 2018, boosted by higher investment outlays of local governments. We expect that the investments growth rate will decrease in H2 2018 due to last year's high base effects and high capacity utilization in construction (supply-side constraints). The increase in construction-assembly production dynamics was also recorded in the section "construction of buildings” (14.6% YoY in August vs. 14.1% in July), which points to continuously high activity in residential construction.

Further slowdown of GDP growth in Q3

The aggregate impact of the data on industrial production and construction-assembly production, which have been released today, is neutral for PLN and Polish bond yields. At the same time they support our forecast of GDP growth rate in Q3 2018 (4.4% YoY vs. 5.1% in Q2).