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Polish manufacturing sector is overheating

PMI for May hits an all-time high

PMI for the Polish manufacturing sector rose from 53.7 pts in April to 57.2 pts in May, running much above our forecast which was consistent with the market consensus (54.1 pts). This means that it has hit an all-time high. The index increased due to higher contributions from all components (current activity, new orders, employment, delivery times, and stocks of purchases). In May, the total number of orders grew significantly, and the component for that category reached the highest level since October 2017. As the orders were growing faster, the new export orders component stabilised on a high level. It shows that it was an increase in the domestic demand, both in terms of consumption (with the economy unfrozen and pent-up demand being released) and investments (a recovery in companies’ investments and increasing activity in the housing construction) that was the main reason why the total number of orders grew at a quicker pace. An increase in the number of incoming orders led to strong acceleration of the current output growth (the component rose almost enough to reach the level recorded in July 2020, which was the time of a strong recovery supported by the reconstruction of supply chains after the first wave of the pandemic).

Strong signs of overheating in Polish manufacturing

The structure of the May’s PMI is indicative of a strong and growing supply barrier accompanied by signs of overheating in the Polish manufacturing sector. In May, the delivery times component stood at the lowest level in the survey history. This means that lengthened delivery times caused by shortage of materials and bottlenecks in global supply chains curbed the activity in the Polish manufacturing sector to a greater extent than in April 2020, when hard lockdown was in force and global supply chains were broken. Lengthened delivery times and unsatisfied demand result in growing backlogs of work (the component fell slightly comparing to a record level seen in April) and a quicker growth in costs and prices of the production sold (both components reaching the highest level in the survey history). What is also noteworthy is that the employment component rose to the highest level since April 2017. It suggests that companies believe the strong increase in demand will be sustained, which to a great extent results from shifts in supply chains that favoured Polish exporters. Our opinion is supported by the future output component, which grew significantly and reached the highest level since December 2020.

Clear upside risk to our 2021 GDP forecast

Both the level of the May PMI and its composition signal a significant upside risk to our forecasts of export and investment paths in 2021. Manufacturing backlogs are large enough to keep manufacturing activity high also in H2 2021 even in the case of an unexpected downturn abroad. We expect that production growth in export industries in the coming quarters will also be supported by gradually increasing material availability and unblocking global supply chains. We will present our revised macroeconomic scenario for 2021-2022 in the upcoming MACROmap.

Today’s results of the PMI survey for the Polish manufacturing sector are slightly positive for the PLN and the yields of bonds.