Surprising resilience of Polish manufacturing to the slowdown abroad
Surprising growth of industrial production
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 6.1% YoY in January vs. 2.8% in December, running significantly above our forecast (3.7%) and the market consensus (3.9%). The main factor behind the increase in industrial production between December and January was a favourable difference in the number of working days (in December 2018 the number of working days was the same as in 2017, while in January 2019 it was higher by 1 day from the year before). However, the scale of the recovery in production in January was bigger than the favourable impact of calendar effects would suggest. Thus, seasonally-adjusted industrial production increased by 1.7% MoM in January.
Exports support production
The industrial production growth in January was supported by high production dynamics in the export-oriented branches: "electrical equipment” (17.3% YoY), "other transport equipment” (13.3%), "computers, electronic and optical products” (10.9%), and "metal products” (8.0%).
In the light of the available results of business surveys in Poland (e.g. decrease in the PMI output sub-index in January to the lowest level since June 2009), the strong recovery of industrial production growth in January is hard to explain. The structure of production growth is also surprising in the context of the slowdown of economic growth in major trade partners (in Germany and the Eurozone), conducive to a visible decrease in the demand for Polish exports. The increase in production may have been caused by the distribution of holidays in December 2018 which supported longer leaves of absence, which limited production at the time and boosted its dynamics in January.
We believe that the recovery of production in January (including the particularly good result of the export branches) was temporary. Our view is supported by the results of the January NBP business survey (Quick Monitoring). They indicate that the demand forecasts for exports have markedly decreased in Q1 2019. However, it should be pointed out that the demand forecasts indicators among non-exporters (in the NBP survey) are stable and stand at levels exceeding medium-term average, which should contribute towards stabilizing industrial production in Poland in the coming months.
The slowdown of GDP growth in Q1 smaller than we expected?
The January data on industrial production pose an upside risk to our forecast of economic growth in Q1 (3.7% YoY vs. 4.9% in Q4 2018). We also maintain our view that, due to the expected by us recovery of global trade starting from Q2, the business climate in the Eurozone can be expected to gradually improve, limiting the scale of the slowdown in Poland in subsequent quarters. Our scenario is supported by the measures taken by the Chinese authorities to stimulate economic growth in China.
Today's data on industrial production in January are slightly positive for PLN and Polish bond yields.