Industrial production figures still below zero as expected

Industrial production growth slowing down

In accordance with the GUS data, the volume of sold production of industry in enterprises employing more than 9 people fell by 3.2% YoY in May vs. a 6.4% decline in April, running slightly below the market consensus that was consistent with our forecast (-3.0%). A statistical effect of a favourable difference in the number of working days (in May 2023, the number of working days was the same as in the previous year, while in April 2023 there was one day less than in April 2022) had an upward impact on industrial production growth between April and May. Seasonally-adjusted industrial production shrank by 2.4% MoM in May, which represented the third consecutive monthly fall.

Polish exports driven by the automotive industry

Due to favourable calendar effects, May saw the annual production growth acceleration in all three main groups of companies. In export-oriented sectors, production in May increased by 3.8% YoY vs. 0.7% in April, but it fell in construction-related companies (-8.5% YoY vs. -10.3%) and other sectors (-5.6% YoY vs. -9.1%). It is worth noting that the automotive industry (“vehicles, trailers and semi-trailers” and “other transport equipment”) accounted for more than a half of production dynamics increase in export-oriented sectors between April and May. It is consistent with the trends observed in the last couple of months: the recovery seen in the German automotive industry and good results of Polish exports of vehicles and vehicle parts as reported by the NBP.

However, the continuing production decline in non-export-oriented branches reflects a poor domestic consumption and investments demand in Poland. We continue to believe that production growth in those sectors 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. Nonetheless, recent business sentiment survey results are indicative of continuing recession trends in the industrial manufacturing sector in the Western Europe, which might delay the recovery mentioned above until Q4 2023. In this context, particularly noteworthy is the publication of preliminary PMI indexes for the Eurozone for June planned for Friday.

Surprisingly rapid wage growth in the manufacturing sector

In accordance with the GUS data published today, nominal wage growth in the sector of businesses employing more than 9 employees increased from 12.1% YoY in April to 12.2% YoY in May, running below the market consensus (12.6%) and our forecast (12.7%). In real terms, after the adjustments made to take into consideration the changes in prices, wages in enterprises shrank by 0.7% YoY in May comparing to a 2.2% drop in April. The wage growth breakdown for May shows that it was a faster growth in wages in the manufacturing sector (11.3% YoY in May vs. 9.8% in April) that drove the total wage growth up between April and May. This trend is somewhat surprising in the context of the restructuring processes running in the enterprises (see below), and we believe that it is only transitional. A strong slowdown in wages in the mining sector had the opposite impact (20.2% YoY in May vs. 48.6% in April), which was connected with the fading effect of last year’s low base. 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 in progress

Employment rate growth in the enterprise sector did not change in May in comparison to April, and it was 0.4% YoY. This means it ran in line with the market consensus and slightly below our forecast (0.5%). The number of employed individuals shrank by 6.6k between April and May. Workforce cuts were concentrated in the industrial manufacturing sector (a drop by 3.8k), which confirms that the restructuring processes observed over the last couple of months are continued.

Employment growth stabilisation combined with a slower decline in real wages 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 -0.3% YoY in May vs. -1.8% YoY in April and -2.5% in Q1. Wage fund data are indicative of a slight upside risk to our consumption growth forecast (-3.5% YoY in Q2 vs. -2.0% in Q1). It will be possible to assess private consumption trends more precisely when we see the retail sales data for May, which is to be published tomorrow.

GDP growth figure for 2023 to run around 1%

Today's labour market and industrial production data do not make us change our GDP growth forecast for Q2 (-0.2% YoY vs. -0.3% in Q1) and the entire 2023 (1.2%). Therefore, we maintain our “soft landing" scenario for the Polish economy, in which GDP growth in Poland in 2023 will remain positive despite a significant slowdown, which nonetheless will not be accompanied by a significant unemployment growth.

In our opinion, the labour market and industrial production data for May are neutral for the PLN and yields on Polish bonds.