Business sentiment in Polish manufacturing (PMI) rose to 51.9 pts in November from 50.2 pts in October, running markedly above our forecast (50.7 pts) and the market consensus (50.8 pts). As we expected (see MACROpulse of 2/11/2016), the fall of PMI indicator in October was of a one-off nature. The improvement of sentiment recorded in November in Polish manufacturing resulted mainly from an increase in subindices concerning employment, output, and new orders. They have jointly contributed to an increase in PMI by 1.8 pts. In our view, the pick up in these values was mainly due to low base effects from the month before.

In the context of low base effects and a sharp increase (up by 2.4 pts) in the sub-index concerning total new orders, especially noteworthy is only a slight increase in the sub-index concerning new export orders. In addition, its value (49.7 pts in November vs. 49.6 pts in October) is for a second month in a row below the 50-point threshold dividing expansion from contraction of activity. The decline in foreign demand is in conflict with the November results of business surveys for the Eurozone and Germany, which recorded a strong growth of output and new orders in MoM terms. In our view, the lower inflow of orders is mainly due to the change in the structure of economic growth, observed in recent quarters in the Eurozone (sharp decline in the contribution of exports to growth), conducive to lower demand for goods manufactured in Poland and used in the production of final products.

The average value of PMI in October-November period (51.0 pts) stood at a slightly lower level than in Q3 (51.3 pts). Thus, today's data, combined with the structure of GDP growth in Q3 released yesterday, support our view that GDP dynamics in Q4 will amount to ca. 2.0% YoY vs. 2.5% in Q3.

Today's data are slightly positive for PLN and yields on Polish bonds.

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