Improving production outlook in manufacturing

PMI below expectations

The PMI for Polish manufacturing dropped to 48.2 pts in December from 48.9 pts in November, falling below market expectations (48.6 pts) and our forecast (48.9 pts). This means the index has remained below the 50-point mark separating growth from contraction for 32 consecutive months. The PMI declined on the back of lower contributions from 4 out of its 5 sub-indices (output, stocks of purchases, employment and suppliers' delivery times), while a higher contribution from new orders had the opposite impact.

First signs of domestic demand recovery

The data notably shows the slowest decline in total new orders since November 2023, accompanied by an acceleration in the decline of new export orders. According to the underlying release, this points to a recovery in domestic demand, with foreign demand remaining weak, largely due to reduced orders from Germany (see MACROmap of 23.12.2024).

Improving production outlook in manufacturing

Despite a slower drop in new orders and a quicker reduction in production backlogs in December, output contracted the most since August 2024. This was reflected in a substantial reduction of stocks of finished goods. This was attributable to output falling quicker than orders, forcing businesses to tap into their stocks of finished goods to satisfy demand. As a result, the ratio of new orders to stocks of finished goods reached its highest level since September 2021. According to the release, in the context of first signs of recovery, the low level of stocks of finished goods will support an increase in output in the coming months. This assessment is supported by three consecutive months of growth in manufacturing employment, signalling that businesses are rebuilding their production capacities (see MACROpulse of 19/12/2024). December also saw an increase in the index value for output expected in a 12-month horizon, which remains at a relatively low level historically.

GDP growth to slow down slightly in Q4

The PMI in Q4 printed markedly above its average value for Q3 (48.8 pts vs 47.9 pts), but this has no impact on our scenario of a slight GDP growth slowdown in Q4 (to 2.5% YoY vs. 2.7% in Q3).

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