Marked deterioration in Polish manufacturing

Marked deterioration in Polish manufacturing

Polish manufacturing PMI dropped to 47.8 pts in September vs 48.8 pts in August, running slightly below the market consensus (47.9 pts) and above our forecast (47.0 pts). Thus, the index has now for eleven months in a row been running below the 50 pts threshold dividing expansion from contraction of activity.

External and internal environment of Polish manufacturing is deteriorating

The decrease in PMI resulted from lower contributions of 2 out of its 5 sub-indices (for new orders and output), while higher contributions of sub-indices for suppliers’ delivery times, employment and stocks of purchases had an opposite impact. Especially noteworthy in the index structure is a sharp decrease in the new orders sub-index, which stood at the lowest level since June 2009, namely from the times of the global financial crisis. The sub-index decrease resulted from both weaker foreign and domestic demand. In the case of foreign demand it is the effect of the strong deterioration of situation recorded in recent quarters in the Eurozone, in Germany in particular (see MACROmap of 30/9/2019). In turn the weakening of domestic demand results from the slowdown of activity in domestic construction, which is conducive to lower output dynamics in branches of manufacturing supplying the construction (see MACROpulse of 23/9/2019).

The deteriorating external and internal environment of Polish manufacturing is also reflected by increasing pessimism of the surveyed companies. The future output sub-index, though still standing above 50 pts, has decreased in September to the lowest level in history (namely at least since April 2012). According to the report, only one in three surveyed companies expects increase of production in the horizon of 12 months. Weak sentiment is reflected by lower forecasts of the European demand and companies concerns about the anticipated higher competition from Asia.

Economic growth to slow down in subsequent quarters

The average value of PMI amounted to 48.0 pts in Q3 vs. 48.8 pts in Q2. Today's business survey results for Polish manufacturing, coupled with the observed in recent months decreasing resilience of Polish manufacturing to the slowdown in manufacturing in the Eurozone, support our forecast, in which the dynamics of the Polish GDP will decrease to 4.3% YoY in Q3 vs. 4.5% in Q2, and in the whole 2019 it will drop to 4.4% YoY vs. 5.1% in 2018.