Illusory improvement in Polish manufacturing sector

PMI for Polish manufacturing increased from 48.6 pts in September to 49.2 pts in October, running markedly above market consensus (48.4 pts) and our forecast (48.3 pts). Nonetheless, despite the increase, October was the 30th month running when the index remained below the 50-point mark separating growth from contraction. The index increase resulted from higher contributions of 3 out of its 5 components (inventories, output and employment), with lower contributions of new orders and delivery times having the opposite effect.

Particularly noteworthy about this data is the growth in output, which went up above the 50-point mark for the first time since April 2022. However, in our view, the good news is not as good as it could seem. A closer look at the PMI data breakdown shows that the output grew mainly as a result of reduction of production backlogs, which shrank for the 29th month running in October. At the same time, the total volume of incoming orders was lower than in September. In our view, without the lasting improvement in demand, the output growth seen in October will only be transitional. Our conclusion is underpinned by the index value for the production expected in a 12-month horizon (future output index), which dropped slightly in October, reaching the lowest level since August 2023 despite staying above the 50-point mark. In accordance with the report, some of the enterprises taking part in the survey were worried about the weakening of the German economy and automotive industry.

Nonetheless, the results of the survey also gave some optimistic signals. Despite a stronger decline in the total volume of new orders, new export orders’ drop in October was less marked than in September. Such slower decline is consistent with the released preliminary PMIs for manufacturing in the Eurozone, including Germany, which showed some improvement in October (see MACROmap of 28/10/2024). Furthermore, in October, the employment rate rose for the first time since May 2022. In accordance with the PMI report, enterprises were creating new full-time positions and filling vacancies. This trend may indicate that the restructuring processes seen in the Polish manufacturing sector over the last couple of quarters are coming to an end.

PMI in October printed markedly above its average value for Q3 (47.9 pts). This, however, has no impact on our scenario of slight GDP growth slowdown in Q4 (down to 2.5% YoY vs. 2.7% in Q2). A growth in added value in services is currently of key importance from the point of view of the economic growth rate. At the same time, we believe that today’s data is slightly positive for the PLN and the yields on Polish bonds.