Data for export-oriented sectors still weak

Year-on-year industrial production figures still negative

In accordance with the GUS data, industrial production sold in enterprises employing more than 9 people decreased by 2.0% YoY in August compared to a 2.3% drop in July, running below the market consensus and our forecast (-1.7%). Seasonally-adjusted industrial production increased by 0.6% MoM in August.

Total YoY industrial production growth between July and August was driven up primarily by “mining and quarrying” (-7.5% YoY in August vs. -10.2% in July) and “electricity, gas, steam and air conditioning supply” (1.7% YoY vs. -4.4% in July). This is because the combined contribution of those two categories went up by approx. 0.5 pp. between July and August. Production growth in manufacturing, however, did not change between July and August and stood at -2.1% YoY.

Data for export-oriented sectors still weak

Like in July, also in August, the main factor driving the YoY industrial production further down was the slowdown in activity in those sectors that sell most of their production abroad (1.4% YoY in August vs. 2.7% in July). The main reason why the activity in export-oriented sectors slowed was the slowdown in such categories as “computers, electronic and optical products” (-12.2% YoY in August vs. -1.6% in July), “electrical equipment” (-7.3% vs. -3.3%) and “vehicles, trailers and semi-trailers” (14.0% YoY vs. 14.9%). Production slowdown in the automotive industry was partly connected with the shift of dates of summer holiday breaks in car factories comparing to 2022.

However, production growth in non-export-oriented sectors in August reached the highest level since January 2023 (-3.3% vs. -4.8% in July). This means that our scenario, in which the inflation drop driving real wages and consumption up combined with the increase in housing investments and investments co-financed with EU funds drives the activity up in the sectors where production is sold mainly on the domestic market is materialising. Further deterioration of economic situation outside Poland in August will in turn curb the increase in activity in the Polish export-oriented sectors in the coming months as well. Recovery in that segment of the Polish manufacturing sector will come later, towards the end of 2023, together with the recovery that we expect to take place in the Eurozone (see MACROmap of 31/07/2023).

Marked growth in real wages driven by base effects

In accordance with the GUS data published today, nominal wage growth in the sector of businesses employing more than 9 employees increased from 10.4% YoY in July to 11.9% YoY in August, running above the market consensus (11.8%) and below our forecast (12.4%). In real terms, after the adjustments made to take into consideration the changes in prices, wages in companies rose by 1.7% YoY in August comparing to a 0.3% drop in July. The real growth rate turned out to be the strongest since February 2022.

The easing of last year’s high base effects was the main factor driving nominal YoY wage growth up between July and August. In July 2022, wages were boosted by the payment of rewards (they included one-time rewards in the mining sector and other ones such as rewards paid out to mark the Forester’s Day or Power Station Worker’s Day). We expect the nominal annual wage growth to follow a mild downward trend in the quarters to come, and we also believe the same will apply to average wages across the entire economy. A significant inflation drop, which we expect to take place, combined with the related wage pressure ease in the enterprises will be the main factor slowing the nominal growth in wages down in the quarters to come.

Restructuring processes in the manufacturing sector still curb the employment growth

The employment growth in the enterprise sector went down to 0.0% YoY in August vs. 0.1% in July. This means that it was below the market consensus consistent with our forecast (+0.1%). The number of employed in August went down by 11.6k comparing to July. Like in the previous months, workforce cuts remain the main factor curbing the employment growth in the manufacturing sector (a 8.5k drop MoM in terms of the number of employed), which confirms that the restructuring processes running in this sector over last couple of months are still in progress.

Employment growth stabilisation combined with real wage growth in the enterprise sector resulted in an increase in the real wage fund growth rate in the enterprise sector, the rate being the product of employment and average wage adjusted for changes in prices, to 1.7% YoY in August vs. -0.3% YoY in July. This means that real wage fund growth between July and August was stronger than in Q2 (+0.7% vs. -0.5%). The wage fund data is consistent with our consumption growth forecast (+0.2% YoY in Q3 vs. -2.7% in Q2). Private consumption growth in Q3 will be additionally supported by the easing of last year’s high base effects connected with the outbreak of war in Ukraine (see MACROpulse of 16/08/2023). It will be possible to assess private consumption trends more precisely when we see the retail sales data for August, which is to be published tomorrow.

We uphold our “soft landing” scenario

Today’s data is consistent with our “soft landing" scenario for the Polish economy, in which GDP growth in Poland in 2023 will remain positive despite a marked slowdown (with the average annual growth standing at 0.5% YoY), which nonetheless will not be accompanied by a significant unemployment growth.

In our opinion, the labour market and industrial production data for August is slightly positive for the PLN and the yields on Polish bonds.