Export-oriented sectors still resilient to downturn abroad

In accordance with the GUS data, the volume of sold production of industry in enterprises employing more than 9 people fell by 1.2% YoY in February vs. +1.8% in January, running markedly below the market consensus (+1.0%) and slightly below our forecast (-0.9%). A statistical effect coming from an unfavourable difference in the number of working days between January and February (in January, the number of working days was two days higher than in 2022, while in February it was the same as a year ago) drove the industrial production growth down. Seasonally-adjusted industrial production increased by 0.9% MoM in February. This means that we can expect the seasonally-adjusted industrial production to stabilise in Q1 2023 vs. Q4 2022 given the way the industry growth indicators for Poland and the Eurozone looked like in February 2023.

February saw a decrease in the annual production growth in the three main categories of companies. In export-oriented sectors, production increased by 7.0% YoY vs. 9.5% in January, but it fell in construction-related companies (-3.7% YoY vs. +3.0%) and other sectors (-5.1% YoY vs. -0.9%). The production growth structure shows that the only positive contribution towards total industrial production growth in February came from the export-oriented sectors, whose activities were strongly supported by reduction in production backlogs, with shortages of raw materials and components becoming less severe. In our opinion, production growth decline in export-oriented branches was much lower than the aforementioned effect of working days would suggest. Thus, export-oriented branches are relatively resilient to the downturn seen by Poland’s main trade partners. However, the continuing production decline in other branches reflects a poor internal consumption and investments demand in Poland. We continue to believe that production growth in sectors that are not focused on exports can be expected to accelerate significantly only in H2 2023, when disinflation leads to an increase in real wage and consumption growth, and when public investments co-financed with EU funds accelerate significantly. In H2 2023, we expect the production growth to accelerate also in export-oriented sectors, supported by the expected economic upturn in the Eurozone. This conclusion is consistent with the February PMI results for the Polish industrial manufacturing sector, which indicated that the surveyed companies are increasingly optimistic about production in the 12-month horizon, with the optimism reaching the highest level since April 2022 (see MACROpulse of 01/03.2023).

Wage pressure: uneven distribution between the enterprises

In accordance with the GUS data published today, nominal wage growth in the sector of businesses employing more than 9 employees increased from 13.5% YoY in January to 13.6% YoY in February, running above our forecast (11.7%) and market consensus (12.0%). In real terms, after the adjustments made to take into consideration the changes in prices, wages in companies fell by 4.1% YoY in February comparing to -3.1% in January. Annualised nominal wage growth accelerated slightly in February despite the fading of last year’s high base effect (February 2022 saw a strong growth in wages: +2.6% MoM). Wage growth structure data for January indicates that the total wage growth between January and February was mainly driven up by a stronger growth in “mining and quarrying” (21.1% YoY in February vs 15.8% in January) and “electricity, electricity, gas, steam and air conditioning supply” (14.8% vs. 13.5%). The data suggests that wage pressure in the Polish industry is distributed unevenly, and that it is particularly strong in State Treasury-controlled sectors. In other main sectors (industrial manufacturing, constructions and trade), the annualised wage growth has declined. It is consistent with our conclusion, which says that we will see the nominal wage growth following the downward trend again in the quarters to come after a temporary increase seen in Q1 2023, and that the said downward trend will also be seen in the case of average wages across the entire economy. Economic slowdown, and a strong inflation drop, which we expect to take place, combined with the related wage pressure decline in the enterprises will be the main factors slowing the growth in wages down in the quarters to come (see MACROmap of 20/03/2023).

Employment rate decline in February comes as a surprise

Employment growth in the enterprise sector went down to 0.8% YoY in February vs. 1.1% in December, running below the market consensus (1.0%) and our forecast (0.9%). Employment figures fell by 3.8k between January and February, and this was the first decline in employment seen for a February since 2015. As regards the main categories, negative employment dynamics expressed in annual terms was reported in manufacturing (-0.6% YoY vs. -0.5% in January) and constructions (-1.6% vs. -1.2%). Total employment decline in February and stronger annualised decline in manufacturing and constructions are indicative of increasing restructuring processes in sectors that are particularly strongly affected by economic growth slowdown and growing prices of energy commodities. In our opinion, business survey data for industrial manufacturing, construction and services combined with labour market data showing that the number of people declared by the companies to be laid off is low, and also with a historically high level of vacancies show that the said restructuring processes will be gradual in the months to come. The restructuring processes will involve staff turnover, which means that the employees will be accepting job offers in the sectors in which the demand for workforce is still high. In other words, we believe that the scenario in which employment in the enterprises sector were to plummet in 2023 is unlikely. We expect the employment in the companies to start growing markedly in H2 2023 along with the global and domestic economic upturn.

A slower growth in employment combined with a quicker slowdown of real wage growth in the enterprise sector resulted in a decrease 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 -3.3% YoY in February vs. -2.1% in January. The wage fund data is consistent with our real consumption slowdown forecast (to -2.0% YoY in Q1 2023 vs. -1.5% in Q4 2022). It will be possible to assess private consumption trends more precisely when we see the retail sales data for February, which is to be published tomorrow.

Annualised Q1 GDP will shrink, but this does not mean we will see technical recession taking place

Today's labour market and industrial production data support our forecast, in which Poland's GDP will fall by 0.8% YoY in Q1 2023 vs. 2.0% in Q4 2022. They also indicate that the probability of the seasonally-adjusted QoQ GDP shrinking in Q1 is slightly lower. In other words, the set of data published by the GUS today is indicative of a slightly lower likelihood of Poland going into the so-called technical recession understood as the seasonally-adjusted GDP declining for at least two consecutive quarters. It will be possible to assess this likelihood more thoroughly following the tomorrow’s publication of the February data for construction and assembly production and retail sales and after the publication of the business survey data on Poland’s main trade partners (PMI), which is planned for Friday.

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 significant slowdown (1.2% YoY vs. 4.9% in 2022), which nonetheless will not be accompanied by a significant unemployment growth.

In our opinion, today’s data are neutral for the PLN and the yields on Polish bonds.