Calendar effects boosted industrial production growth

In accordance with GUS data, dynamics of sold production of industry in enterprises employing more than 9 people rose to 6.2% YoY in July vs. 4.5% in June, which was below the market consensus (8.4%) and our forecast (7.5%). The main reason for the increase in production dynamics between June and July was a favourable difference in the number of working days (in June 2017 the number of working days was lower by one day than in 2016, while in July 2017 it was the same as the year before). Seasonally-adjusted industrial production decreased by 1.2% MoM in July.

Holiday breaks in car factories limited production growth

The acceleration in industrial production growth in July was slower than it would result from the number of working days. In our view, the factor which limited the increase in activity in manufacturing were longer than last year holiday breaks in the car factories (see MACROpulse of 1/8/2017). Consequently, it can be expected that the annual output growth in the branch ""motor vehicles, trailers and semitrailers” was negative. The plants resumed activity in August and thus the decline in output growth in this category was most probably temporary.

It is noteworthy that high dynamics of industrial production against the backdrop of other categories have been observed in recent months in the branches: "metals” (17.2% YoY vs. 7.6%), "metal products” (8.6% YoY vs. 6.2%), "other non-metallic products” (10.9% YoY vs. 5.9%), and "rubber and plastic products” (10.9% YoY vs. 5.9%). In our view, this is the effect of the positive impact of the recovery in construction on braches manufacturing goods used in the construction-assembly production (see below).

Manufacturing working at full speed

The annual production growth rate in manufacturing amounted to 6.9% vs. 5.0% in June. The continuing high increase of activity in manufacturing is conducive to higher capacity utilization. According to GUS data, seasonally-adjusted capacity utilization in manufacturing amounted to 80.0% in Q3 vs. 80.1% in Q2 (the highest level since Q2 2008). We expect that growing demand and the resulting capacity barrier will make companies increase investment outlays in the coming months. This supports our forecast of increased investment growth in Q3 (6.1% YoY vs. 2.7% in Q2).

Construction-assembly production growing at the fastest rate since 2012

According to GUS data, the construction-assembly production growth rose to 19.8% YoY in July vs. 11.6% in June. Like in industrial production, its increase was supported by the favourable difference in the number of working days. Seasonally-adjusted construction production rose month-on-month by 4.3% and its annual seasonally-adjusted growth rate (18.0%) was the fastest since January 2012, namely since the construction boom related with EURO 2012.

The increase in the construction-assembly production dynamics resulted from higher output growth rate in all its categories "civil engineering objects” (33.7% YoY in July vs. 27.4% in June), "specialized construction activities” (9.1% vs. 4.0%), and "construction of buildings” (13.1% vs. 1.2%). Especially noteworthy is a very fast increase of production in the category "civil engineering objects”. In our view, it indicates a marked recovery in public investments. This view is supported by the data released this week on the execution of local governments' budgets in Q2 2017, indicating higher dynamics of investments they implement (up to 24.1% YoY vs. 11.2% in Q1). In turn, sharp increase in output growth rate in the category "construction of buildings” confirms a strengthening recovery in residential construction, signaled by business sentiment indicators in this sector. We expect that the construction-assembly production, supported by growing absorption of EU funds, higher public outlays on infrastructure and recovery in residential construction, will remain within an upward trend in the coming months.

Slightly higher retail sales growth

In accordance with the GUS data released today, nominal dynamics of retail sales in enterprises employing more than 9 people increased to 7.1% YoY in July vs. 6.0% in June, which was below our forecast (8.0%) and the market consensus (7.5%). Real retail sales growth rose to 6.8% YoY in July vs. 5.8% in June. Conducive to higher sales growth in July was the above-mentioned favourable difference in the number of working days. Higher retail sales growth was also supported by the low base effects from the year before in the category "motor vehicles, motorcycles and parts” (10.0% YoY vs. 2.5% in June). We expect that in the coming months the annual sales dynamics will gradually decrease, due to last year's high base effects related with the disbursement of funds under the Family 500+ scheme.

Data on industrial production, construction-assembly production and retail sales are consistent with our forecast of GDP growth rate in Q3 2017 (up to 4.1% YoY vs. 3.9% YoY in Q2). Today's data are neutral for PLN and yields on Polish bonds, we believe.

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