PMI for Polish manufacturing dropped to 52.3 pts in July vs. 53.1 pts in June, running below our forecast (53.0 pts) and the market consensus (53.3 pts). The deterioration of sentiment recorded in July was mainly caused by a decrease in the sub-indices concerning output and new orders. Together they were conducive to the index decline by 1.2 pts. As a result, PMI hit the lowest level since November 2016.

July flash PMIs for the Eurozone (including Germany) pointed to a deterioration of sentiment in manufacturing (see MACROmap of 31/7/2017). However, lower economic growth rate abroad did not cause a deterioration of business climate in Poland, as shown by higher sub-index for export orders (up to 53.3 pts in July vs. 52.0 pts in June). Therefore, the reason for the PMI decline in Poland was weaker domestic demand. Slower output growth (52.0 pts in July vs. 53.5 pts in June) was likely caused by holiday breaks in the Volkswagen plant in Poznan and Opel plant in Gliwice. They were conducive to a decrease in automotive production in July. The plants will resume operations in August, thus the PMI decline in July was probably temporary. Or view is supported by higher sub-index for employment, reflecting entrepreneurs' confidence about future economic situation.

PMI in July stood at a lower level than in Q2 (53.3 pts). Due to a temporary – we believe – nature of the index decrease in July, today's data do not alter our forecast that economic growth will accelerate in Q3 (4.1% YoY vs. 3.9% in Q2). At the same time, today's reading supports our lower-from-the-consensus forecast of industrial production YoY growth rate in July (7.5% vs. 4.5% in June).

In our view, the July business survey results are slightly negative for PLN and yields on Polish bonds.

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