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Manufacturing resists slowdown in Germany

Industrial production above expectations

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 rose to 7.4% YoY in October vs. 2.8% in September, running above the market consensus (6.7%) and our forecast (6.6%). Seasonally-adjusted industrial production increased by 1.2% MoM in October. The main factor conducive to the increase in industrial production dynamics between September and October was a favourable difference in the number of working days (in September 2018 the number of working days was one day lower than in 2017 while in October 2018 it was one day higher than the year before). On the other hand, industrial production growth was limited in October by the high base effect from the year before in the category "mining and quarrying”.

Exporters going strong despite deceleration in the Eurozone

The structure of the October production points to high rate of production growth in the export-oriented branches ("electrical equipment” (19.5% in October vs. 7.2% in September), "other transport equipment (18.1% vs. 4.2%), "motor vehicles, trailers, and semi-trailers” (9.1% vs. 2.2%), and "machinery and equipment” (8.1% vs. 7.9%)). Considerable production growth in the export-oriented branches in October is good news in the context of the deceleration observed from the beginning of the year in manufacturing in the Eurozone, due to the slowdown in global trade and downturn in the automotive industry (see MACROmap of 29/10/2018 and MACROmap of 19/11/2018). In our view, it results from the fact that Polish companies are clearing the production backlogs accumulated in recent quarters. Given an increasingly slow growth of new foreign orders, signaled by the October business survey results (PMI), this buffer will gradually dry out, which points to a high likelihood of slower production growth in the coming months (see MACROpulse of 2/11/2018).

Construction boom boosts industrial production

October saw a relatively fast growth of production in branches related to construction: "metal products” (13.0% in October vs. 8.1% in September) and "other non-metallic mineral products” (11.1% vs. 6.5%). It means that Polish manufacturing activity is supported by the ongoing construction boom in Poland, which in recent months has been especially supported by the sharp increase in public investments, including those of local government units.

Continuous high activity in residential construction

According to GUS data, the construction-assembly production dynamics increased to 22.4% YoY in October vs. 16.4% YoY in September. Like in the case of industrial production, the increase in construction-assembly production dynamics resulted, to a significant extent, from favourable calendar effects. Seasonally-adjusted construction-assembly production decreased by 0.5% MoM, recording its first month-on-month decline since July 2018. The structure of data on the construction-assembly production continues to signal fast growth of public outlays on infrastructure, supported by strong growth of investments implemented by the public sector (in October production growth in the section "civil engineering facilities” amounted to 25.2% YoY vs. 23.1% in September). We maintain our view that the growth of public investments in the infrastructure peaked in Q1 2018. At the same time, October saw a visible increase in construction-assembly production dynamics in the section "construction of buildings” (26.0% YoY vs. 18.6%), which, combined with the dynamics of housing starts (23.3% in October vs. 14.6% in September), signals continuously high activity in residential construction.

GDP growth to slow down in Q4

The data on industrial production and construction-assembly production, which have been released today, do not alter our view that Q4 will see slowdown of GDP growth, additionally affected by the negative effect of an extra day of holiday (12 November). At the same time the data are neutral for PLN and Polish bond yields.