Continuation of unfavourable trends in export-oriented sectors

Industrial production prints markedly above expectations

In accordance with the GUS data, the volume of industrial production sold in enterprises employing more than 9 people increased by 0.3% YoY in June compared to a 1.6% decline in May (upward revision from -1.7%), running markedly above the market expectations (-1.3%) and our forecast (-2.5%). Seasonally-adjusted industrial production increased by 1.3% MoM in June. In Q2, industrial production accelerated by 2.2% YoY on average, comparing to a 0.2% growth in Q1.

Recession trends in leading export-oriented branches becoming persistent

The acceleration of annual industrial production growth was broad-based, and it could be seen in the three main segments of the industry, i.e. export-oriented branches (-6.1% YoY in June vs. -6.6% in May), construction-related sectors (1.2% vs. -5.4%), and other categories (3.9% vs. 2.0%). What is particularly noteworthy here is the continuation of a marked production slowdown in export-oriented branches. The strongest slowdown has been seen in the “electrical equipment” (-29.2% YoY), “machinery and equipment” (-8.2% YoY), “textiles” (-6.3% YoY) and “vehicles, trailers and semi-trailers” (-4.7% YoY) categories (recession trends in those categories have already been mentioned in our recent analyses of the situation in the Polish manufacturing sector (see MACROmaps of 01/07/2024 and 08/07/2024)). As regards the rapid growth in the “other transport equipment” category in June (+30.4% YoY), we believe we should be very cautious about it, bearing in mind that production in that sector is subject to high volatility connected with large one-off orders. The activity in the “computer, electronic and optical products” category, however, is gradually accelerating (5.6% YoY in June vs. 5.5% in May) just as we expected, and we believe that this acceleration reflects the gradual recovery that we are beginning to see in global trade, and in the high technology sector in particular. What is worth noting is that the activity in construction-related sector has accelerated, too, which stems from the gradual acceleration of activity in the construction sector itself. It is also consistent with the results of our analyses that we have mentioned above.

Demand on intermediate and capital goods remains weak

Breaking production down by the type of manufactured goods, we have concluded that the decline of intermediate (-2.0% YoY in June and -0.2% YoY in Q2 vs. -3.7% in Q1) and capital (-3.0% YoY in June and 0.5% YoY in Q2 vs. 6.6% in Q1) goods production continuing over the last couple of months is particularly noteworthy. In our opinion, it reflects the low level of demand for products manufactured in Poland as part of international supply chains. However, the production of durable (+4.4% YoY in June and 5.7% in Q2 vs. -2.7% in Q1) and non-durable (+3.3% YoY in June and 4.3% in Q2 vs. 1.2% in Q1) consumer goods is growing. It is consistent with our conclusion saying that the recovery in Poland and the Eurozone is driven by private consumption growth. The conclusion is further underpinned by the results of our analysis, which show that the outlook for consumer goods is currently best comparing to other goods exported from Poland (see MACROmap of 15/07/2024).

Restructuring processes in the manufacturing sector as the main reason behind the drop in the employment

In accordance with the GUS data published today, employment figures for the enterprise sector went up from -0.5% in May to -0.4% in June, printing in line with market consensus and above our forecast (-0.5%). The number of employed individuals shrank by 3.2k between May and June. Employment figures were driven down primarily by the decline in the “industrial manufacturing sector” category, just as it had been the case in the previous months, which was connected with the continuing restructuring processes in that sector. However, taking into consideration the business survey data for industrial manufacturing combined with labour market data showing that the number of people the companies declared to be laid off is low, with a historically relatively high level of vacancies on top of that, we have not changed our opinion, which says that the said restructuring processes will be carried out gradually 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. Bearing in mind that consumption will be the main driver of the economic recovery that we expect to take place in the quarters to come, the demand for the labour force will increase primarily in those sectors that are mostly consumer-oriented, i.e. in the services and consumption goods production sectors. Noteworthy in this context are the recent results of the NBP’s Quick Monitoring business sentiment survey, which show that services are the only sector next to construction, where the share of firms informing about vacancies is not decreasing. In other words, we are still of the opinion that the scenario in which employment in the enterprise sector were to plummet in 2024 is unlikely.

Strong wage growth supports our consumption forecast

Nominal wage growth in the sector of companies employing more than 9 employees fell from 11.4% YoY in May to 11.0% YoY in June, printing below market consensus (11.5%) and our forecast (11.2%). In real terms, after the adjustments made to take into consideration the changes in prices, salaries in companies rose by 8.2% YoY in June comparing to an 8.7% growth in May. Wage growth slowdown combined with a slower decline in employment in the enterprise sector resulted in a slight 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, down to 7.8% YoY in June vs. 8.2% YoY in May. In Q2, the real wage fund growth slowed to 8.1% from 9.2% in Q1. This, however, has no impact on our annual consumption growth acceleration scenario for Q2 (see MACROmap of 10/06/2024). This is because wages across the entire economy grow markedly stronger than in the enterprise sector (we forecast that nominal wage growth across the entire economy stood at 15.5% YoY in Q2 vs. 14.4% in Q1 comparing to 11.3% in the enterprise sector alone). A stronger nominal wage growth prospect is consistent with the recent results of the NBP’s Quick Monitoring survey, which show that the share of companies planning to raise wages in the following quarter has increased a bit despite wage pressure having eased in Q2. It will be possible to assess private consumption trends more precisely when we see the retail sales data for June, which is to be published on Monday.

Gradual recovery scenario underpinned by data

Today’s data on industrial production and average wages and employment in the enterprise sector underpin our scenario, in which economic growth will follow an upward trend in the coming quarters, boosted primarily by consumption. However, despite better-than-expected production figures for June, we believe there is a downside risk to our economic growth forecast for 2024 (2.8% YoY), which is connected with a downturn observed in the Eurozone and with poorer investment sentiment demonstrated by the enterprises in the domestic business sentiment surveys (true for both GUS and NBP surveys).

We believe that the overall tone of today’s data from Polish economy is slightly positive for the PLN and the yield on Polish bonds.