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Capacity utilization still low, exports are lagging

Slight recovery in 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 -17.0% YoY in May vs. -24.6% in April, running slightly below the market consensus (-16.8%) and above our forecast (-20.0%). Seasonally adjusted industrial production increased by 12.2% MoM in May.

Capacity utilization still low, exports are lagging

The increase in the annual industrial production dynamics reflects the resumption of activity by some companies after the lock-down in April and points to the first effects of the gradual easing of the administrative restrictions introduced to contain the spread of the epidemic. Despite the gradual resumption of production, capacity utilization continues to stay at a low level. The best example is the automotive branch – production dynamics in the category “motor vehicles, trailers and semi-trailers” stood still markedly below zero (-58.0% YoY in May vs. -78.9% in April). Taking a broader view, only two major categories recorded an increase in production in YoY terms in May – “electrical equipment” (1.2%) and “tobacco products” (8.1%).

Like in March and April, due to broken international supply chains as a result of the spreading COVID-19 pandemic, production in branches with a relatively high share of exports in sales was decreasing faster than in the remaining categories. The sharpest decrease in production was recorded in the aforementioned automotive branch and i.a. in the segments: “leather and leather products” (-37.7% YoY), “machinery and equipment” (-26.4% YoY), “textile products” (-20.0% YoY), and “furniture” (-19.7%). However the scale of the decrease in production in May was smaller from April, which was conducive to higher total industrial production dynamics.

Improving situation in construction

Like in the case of most branches, the segments responsible for the supply of raw materials and consumables used in construction projects, i.e. “manufacture of metal products” (-16.5% vs. -18.6% in April) and “manufacture of other non-metallic products” (-12.8% YoY vs. -17.7%) also recorded an increase in production dynamics. This shows that the construction sector remains relatively resilient to the COVID-19 pandemic. This supports our forecast of increase in industrial production dynamics from -0.9% YoY in April to -0.5% in May. The relevant data will be released next week.

Slump in production signals lower investments and lower GDP

We believe that in the coming months, despite a gradual reconstruction of supply chains, capacity utilization in Polish industry will continue to be relatively low and the return of production to the levels from before the outbreak of the pandemic will be slow. This supports our forecast in which total investments and GDP will be decreasing in year-on-year terms until Q1 2021. We maintain our forecast that GDP will decrease on a yearly average by 3.8% in 2020 and will increase by 3.2% in 2021.

Today’s data on industrial production in May are neutral for PLN and yields on Polish bonds.