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Bittersweet data for September

Industrial production once again leaves an unpleasant surprise

In accordance with the data published by the GUS, the volume of industrial production sold by enterprises employing more than 9 people shrank by 0.3% YoY in September vs. a 1.2% decline in August (upward revision from -1.5%), printing below the market consensus (0.2%) and our forecast (0.5%). Industrial production growth was largely driven up by the statistical effect of a favourable difference in the number of working days between August and September (in September 2024, the number of working days was the same as in the previous year, while in August 2024 there was one day less than in August 2023). Seasonally-adjusted industrial production shrank by 0.2% MoM in September. This means that September was the third month running to see the production drop, with a total scale of decline amounting to 1.2%.

Given the impact of favourable calendar effects, the acceleration of annual industrial production growth was broad-based, and was seen in the three main segments of the industry, i.e. export-oriented branches (-2.6% in September vs. -4.6% in August), construction-related sectors (0.3% vs. -4.1%) and other categories (0.9% vs. 0.5%). Nonetheless, seasonally-adjusted industrial production in Poland has recently experienced stagnation. In our opinion, its short-term prospects remain unfavourable due to a lower activity in the manufacturing sector in the Eurozone, including Germany, which reduced demand for intermediate goods manufactured in Poland. Production slowing down in several export-oriented branches in September despite the positive calendar effects is a good illustration of those trends. More information on the outlook for the situation in export-oriented branches will be provided on Thursday, with the publication of the preliminary Eurozone PMI indices for October.

Better results for construction and assembly production

Construction and assembly production growth accelerated to -9.0% YoY in September comparing to a 9.6% decline in August, running above the market consensus (-9.5%) and our forecast (-10.2%). Construction and assembly production decline between August and September (without seasonal adjustment) was slowed by the statistical effect of the favourable difference in the number of working days mentioned above. Seasonally-adjusted construction and assembly production grew by 0.9% MoM in September, but nonetheless it has been following a downward trend since the beginning of the year.

Annual construction and assembly production growth accelerated in 2 out of 3 reported categories, namely “specialised construction activities” (-7.9% YoY in September vs. -9.8% in August) and “civil engineering works” (-8.9% vs. -10.6%), but its decline grew even stronger in the “construction of buildings” category, down from -7.9% to -10.1%. In our opinion, the slowdown is only transitional; it was caused primarily by high base effects, and it occurred amidst a general improvement in the housing construction sector’s activity. We continue to believe that housing constructions will be stimulating the activity in the construction sector in the coming months, the current activity being strongly hampered by the reduced absorption of EU funds. The impact of this factor will be increasingly boosted by projects delivered as part of the National Recovery Plan.

Continuation of restructuring processes in the manufacturing sector

In accordance with the GUS data published today, the employment growth rate for the enterprise sector remained stable between August and September, standing at -0.5% YoY, and aligning with market consensus and our forecast. The number of employed in September went down by 7.6k comparing to August. Like in the previous months, employment figures were driven down primarily by industrial manufacturing (-4.5k), which is connected with the continuation of restructuring processes in that sector. Furthermore, some retiring employees were not being replaced by new ones, and this was also one of the reasons why the employment rate has dropped. However, apart from the strong decline in industrial manufacturing as described above, the number of employees in other sectors remained relatively stable. Therefore, today’s data underpins our conclusion that we are unlikely to see the employment rate in the enterprise sector plummet in 2024.

Normalisation of wage growth

Nominal wage growth in the sector of companies employing more than 9 employees fell from 11.1% YoY in August to 10.3% YoY in September, running below our forecast (10.9%) and market consensus (11.1%). In real terms, wages in companies dropped from 6.6% YoY in August to 5.2% YoY in September. Wage growth normalisation was broad-based as the growth slowed down in most categories. Consequently, September saw a decline in the real growth rate of the wage fund in enterprises, the rate being the product of employment and average wage adjusted for changes in prices, to 4.6% YoY in September, compared to 6.0% in August (5.5% in Q3 vs. 8.1% in Q2). Today’s data is thus consistent with our scenario of annual consumption growth slowdown in H2 2024. It will be possible to assess private consumption trends more precisely when we see the retail sales data for September, which is to be published tomorrow.

Moderate economic growth expected in Q3 2024

Today’s data on industrial production, construction and assembly production, average wages, and employment in the enterprise sector underpin our forecast of moderate economic growth in Q3 (2.7% YoY vs. 3.2% in Q2). The scale of recovery in the services sector remains the main upside risk for that forecast. We believe that the overall tone of today’s data from Polish economy is slightly negative for the PLN and the yield on Polish bonds.