Production (so far) unaffected by the slowdown in global trade
Industrial production slightly 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 6.8% YoY in June vs. 5.4% in May, running above the market consensus (6.1%) and slightly below our forecast (7.0%). Seasonally-adjusted industrial production increased by 0.1% MoM in June. The main factor behind the increase in industrial production dynamics between May and June was a favourable difference in the number of working days (in June 2018 the number of working days was the same as in 2017, while in May 2018 it was one day lower than last year).
Export-driven branches (so far) unaffected by the slowdown in global trade
The structure of data on the June production indicates that the wide ranging recovery in branches with a large percentage of exports in sales: "other transport equipment” (13.7%), "motor vehicles, trailers and semi-trailers” (9.5%), "furniture” (9,4%), and "electrical equipment” (8.9%) continues. This has been signaled earlier by the June PMI for Polish manufacturing, which indicated an increase in the index for new export orders (see MACROmap of 2/7/2018). Nevertheless, we estimate that, given the slowdown in global trade visible since the beginning of the year, the probability that the production growth rate in export-driven branches will decrease in the coming months is high. Moreover, the slowdown in world trade may be aggravated by further escalation of protectionist measures taken by the US in recent weeks. Particularly negative from the point of view of activity in Polish manufacturing would be the possible introduction of higher customs duties on the EU car exports, announced by D. Trump (see MACROmap of 25/6/2018).
Construction industry boom supports industrial production
Like in the previous months, also in June production was growing relatively quickly in branches related to the construction industry: "metal products” (12.9%) and "other non-metallic mineral products” (9.5%). This means that the activity in the Polish industry is driven up by the boom in the Polish construction sector and, in particular, by the strong recovery observed in public investments in the infrastructure (see below).
Strong recovery in the construction industry continues
According to GUS data, the construction-assembly production growth rate increased to 24.7% YoY in June vs. 20.8% YoY in May. Conducive to the increase in the construction-assembly production growth rate was the aforementioned statistical effect of the favourable difference in the number of working days. Seasonally-adjusted construction-assembly production increased in June 2018 by 2.5% MoM, which represents the second consecutive month-on-month increase. Particularly noteworthy in the construction-assembly production structure is strong acceleration of production growth in the "construction of buildings” branch (up to 33.6% YoY) with a simultaneous slight slowdown of growth in the "civil engineering facilities” section (down to 26.9% YoY). This supports our scenario, in which companies' investments will grow significantly in 2018, resulting in higher outlays on buildings and structures necessary to increase the production capacity. Furthermore, such production structure supports our view that the growth of public investments in the infrastructure peaked in Q1 2018, and will be gradually slowing down in the coming quarters due to last year's high base effects and supply-side constraints (shortage of skilled labour force).
Has economic growth slowed down in Q2?
In the whole Q2 the average dynamics of industrial production rose to 7.1% v. 5.6% in Q1, while the dynamics of construction-assembly production dropped to 21.5% vs. 25.7%. Thus, the data on production between April and June pose an upside risk to our GDP growth rate forecast for Q2 2018 (4.9% YoY vs 5.2% in Q1). We will present an updated estimate of GDP growth rate in Q2 2018 after the publication of the June retail sales data.