Global recovery boosts Polish manufacturing

Business sentiment in Polish manufacturing (PMI) dropped to 54.2 pts in February from 54.8 pts in January, running markedly above the 50 pts threshold dividing expansion from contraction of activity. The February PMI was slightly lower from our forecast (54.6 pts) and the market consensus (54.8 pts). The deterioration of sentiment recorded in February in Polish manufacturing was wide ranging – it resulted from a decrease in the contributions of three of its five indicators (for new orders, output, and stocks of purchases).

Especially noteworthy in the data structure is the fast increase in foreign demand. The indicator showing inflow of new orders in exports stood at 54.3 pts in February vs. 55.2 pts in January. The surveyed companies indicated the European and the US market as the main sources of the rise in new orders. In our view, the continuing fast increase in export orders is a consequence of the growing recovery in global trade. This view is supported by high indicators for new export orders in China (53.8 pts, highest since September 2014), the Eurozone (55.5 pts, highest since April 2011), Germany (56.7 pts, highest since January 2014), and the Czech Republic (55.7 pts).

The recovery in manufacturing is sustainable

The rise in total new orders recorded in Polish manufacturing in February (54.5 pts) was slightly faster than the rise in export orders. This supports our scenario, in which the growing recovery in construction, largely caused by the higher use of EU funds and increase in public investments, will be conducive to higher output in branches manufacturing goods used in the construction-and-assembly production (see MACROpulse of 17/2/2017 and MACROmap of 13/2/2017). The marked increase in output recorded in February (56.6 pts vs. 58.2 pts in January) was due to fast inflow of new orders.

An optimistic signal for future business sentiment in Polish manufacturing is also the rise recorded in February in the indicator for future (in the 12-month horizon) output, which rose to the highest level since April 2016. The companies attributed their improved expectations concerning future output i.a. to new product launches, acquisition of new customers, better advertising, and greater investment. This shows that the recovery in manufacturing is sustainable.

GDP increasingly likely to accelerate in Q1 2017

At 54.5 pts, the average level of the Polish PMI in the period January-February was well above the average for Q4 2016 (52.1 pts).Thus, today's reading is yet another – after the data on the January industrial and construction-and-assembly production – signal indicating an upside risk to our forecast of GDP growth in Q1 2017 (2.8% YoY vs. 2.7% in Q4 2016). The results of business surveys for Polish manufacturing support our scenario in which subsequent quarters will see acceleration in Polish exports (see MACROmap of 6/2/2017) and their growth will reach a two-digit level in Q4 2017.

Today's slightly weaker-than-expected data on the February PMI for Polish manufacturing are neutral for PLN and Polish bond yields.

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