Layoffs in manufacturing have significantly decelerated

Slower growth of Polish manufacturing activity

Polish manufacturing PMI dropped to 50.6 pts in August vs. 52.8 pts in July, running significantly below the market expectations (52.9 pts) and our forecast (53.0 pts). Thus, the index has for the second consecutive month stood above the 50 pts threshold dividing expansion from contraction of activity. The index decrease resulted from lower contributions of 4 of its 5 sub-indices (for new orders, output, suppliers’ delivery times, and inventories), while higher value of the employment sub-index had an opposite impact. It is worth noting that lower contribution of the sub-index for suppliers’ delivery times means shorter delivery times which, in the current conditions, is likely to indicate gradual reconstruction of delivery chains broken by the pandemic.

Stable orders, slower production growth

According to the PMI report, many surveyed companies said that the easing of social restrictions and improvement in foreign markets have contributed to higher orders. Meanwhile, other companies have noticed a weakening of domestic demand. Such tendencies were reflected by the stabilization of the level of total new orders (sub-index amounting to 50 pts) with a simultaneous further increase – albeit slower from July – in export orders. We believe that in the coming quarters the recovery in global trade will be slow. This view is supported by the August mixed data on business sentiment in the Eurozone economies. The stabilization of orders contributed to slower output growth in August after July recorded its highest growth rate since January 2011.

Uncertain outlook for Polish manufacturing

The index of anticipated production in the horizon of 12 months stood in August markedly above the 50 pts threshold but below the July level and the values observed before the outbreak of the pandemic. Most likely it mirrors the entrepreneurs’ concerns about another wave of infections and return of restrictions. On the other hand, an optimistic signal coming from the survey is a marked decrease in the scale of redundancies – the employment sub-index stood in August only slightly below the 50 pts threshold. This supports our scenario of a limited increase in the unemployment rate in Poland

The average PMI value between July and August (51.7 pts) was higher than in Q2 (39.9 pts). This supports our forecast assuming a sharp increase in the GDP dynamics between Q2 and Q3. We will present our updated medium-term macroeconomic scenario in the next MACROmap.

Today’s PMI reading is slightly negative for PLN and yields on Polish bonds.