Supply barriers keep on holding Polish manufacturing sector back

The PMI index for the Polish manufacturing sector declined from 57.6 pts in July to 56.0 pts in August, running below the market consensus (56.7 pts) and slightly above our forecast (55.9 pts). The index was driven down by lower contributions of 4 out of its 5 components (new orders, output, delivery times and employment), with an opposite impact coming from a higher contribution of inventories.

The report shows that it was delays in deliveries that slowed the production growth down. Consequently, backlogs of work in August increased at near-record pace (i.e. almost as much as in June). It is worth noting that the backlogs increased quickly, even though the growth in the total number of orders slowed down. This was due to a weaker domestic demand while the number of export orders increased, which is consistent with a favourable situation in the manufacturing sector in the Eurozone (see MACROmap of 30/08/2021).

Although it would be an overstatement to say that supply barriers in the Polish manufacturing sector are beginning to disappear, it should be noted that their increase in August was the slowest comparing to a couple of months that went before. Delivery times kept on getting longer, but the pace of increase was the slowest since March 2021. Similarly, August saw the slowest growth in both the prices of semi-finished goods and materials used for production and of final products (slowest since February and April 2021, respectively).

What is interesting about today’s PMI results is that employment growth slowed down significantly to reach the lowest level since August 2020. We believe that such a strong slowdown comparing to the last couple of months occurred because the effect connected with the last stage of economy opening faded. However, we cannot rule out that it also arose from the businesses concerns regarding the outlook for demand in the coming months in the context of the next wave of the pandemic that is drawing nearer. This pessimism was reflected by the index of expected output for 12 months falling down to the lowest level since April 2021.

The average PMI for the Polish manufacturing sector fell from 58.3 pts for Q2 to 56.8 pts for July-August, which is indicative of a slowdown in economic growth in Q3. We will present our new macroeconomic scenario in the next MACROmap. Today’s data is neutral for the PLN and the yields on Polish bonds.