Double-digit output growth

In accordance with GUS data, sold production of industry in enterprises employing more than 9 people rose by 11.1% YoY in March vs. a 1.2% increase in February, which was significantly above our forecast (7.1%) in line with market consensus. The main reason for the sharp increase in output growth between February and March was a favourable difference in the number of working days (in March 2017 the number of working days was higher by one day than in 2016, while in February 2017 it was lower by one day than the year before). Seasonally-adjusted industrial production rose by 2.1% MoM in March, which means continuation of the upward trend observed since November 2016 for manufacturing activity. On annual basis, seasonally adjusted output growth amounted to 8.1% and was the highest since December 2011.

Industrial activity boosted by external demand and recovery in construction

Like in February, the structure of industrial production growth in March points to external demand as the main driver of increased output. High, against the backdrop of other categories, production growth was recorded in March in branches with a significant share of exports in the sales of products, trade goods and materials: "machinery and equipment” (22.9% YoY), "motor vehicles, semi-trailers and trailers” (18.6%), "computers, electronic and optical products” (15%), and "furniture” (14.5%). These data are in line with our scenario, in which the recovery in the global trade will boost demand for Polish exports and increase manufacturing activity in 2017. This tendency is confirmed by PMI business survey results signaling acceleration in economic growth in the Eurozone and in Germany in Q1, accompanied by a fast increase in new export orders in manufacturing in Germany and the Eurozone (see MACROpulse of 27/3/2017). In addition, relatively high dynamics in the segments "metal products” (18.9% YoY), "other non-metallic products” (21.9%), and "plastic and rubber products” (16.6% YoY) indicate a positive impact of the growing recovery in construction (see below) on branches manufacturing goods used in the assembly-and-construction production.

Explosion in construction activity

According to GUS data, the construction-and-assembly production rose by 17.2% YoY in March vs. a 5.4% YoY decline in February. Seasonally-adjusted construction production rose by 9.7% MoM (the highest since February 2008) and on an annual basis it rose by 10.2% (the highest since April 2014). The increase in the annual production growth was due to the above-mentioned difference in the number of working days, favourable weather conditions in March, and recovery in residential and infrastructural construction. We expect that the recovery in construction will continue into subsequent moths due to the forecasted by us higher absorption of EU funds, significant increase in public outlays on infrastructure, and boom in residential construction (see MACROmap of 13/2/2017 and 6/3/2017). Our scenario is supported by subsequent increase in the seasonally-adjusted indicator recorded in March for the current portfolio of orders in construction in the domestic market (to the highest level since July 2010) and sharp increase in the number of dwellings whose construction has begun (34.5% YoY).

Calendar, low base effects and good weather have helped sales

In accordance with the GUS data released today, retail sales in enterprises employing more than 9 people rose in current prices by 9.7% YoY in March vs. 7.3% in February, which was above our forecast (9.4%) and the market consensus (8.2%). The sales in constant prices rose by 7.9% YoY in March vs. 5.2% in February. Especially noteworthy in the structure of the March sales is the wide range of the acceleration in sales growth in March. It shows that the increase in sales growth was caused by favourable calendar effects. In addition, higher annual sales growth was due to low base effects of last year in the category "other” (increase in dynamics from 1.1% yoY in February up to 10.1% YoY), "furniture, audio-video and household equipment” (from 4.8% YoY up to 17.7% YoY) and favourable weather conditions compared to March 2016 boosting sales of clothes from the spring and summer collection (increase in sales in the category "textiles, clothing, footwear” from 13.2% YoY up to 26.9% YoY).

The data on industrial production and construction in March signal a significant upside risk to our forecast of GDP growth in Q1 2017 (up to 3.6% YoY vs. 2.7 YoY in Q4).

In our view, the aggregate impact of today's data is positive for PLN and bond yields.

© 2017 Credit Agricole Bank Polska S.A. Wszelkie prawa zastrzeżone.

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