Disappointing data on industrial production
In accordance with the Polish Central Statistical Office's (GUS) data, the dynamics of sold production of industry in enterprises employing more than 9 people dropped to 2.8% YoY in September vs. 5.0% in August, running below the market consensus (4.3%) and our forecast (4.5%). Seasonally-adjusted industrial production decreased by 0.7% MoM. The main factor behind the decrease in industrial production dynamics between August and September was an unfavourable difference in the number of working days (in August 2018 the number of working days was the same as in 2017 while in September 2018 it was one day lower than the year before).
Economic downturn abroad and supply-side constraints have limited production growth
The considerable decrease in production dynamics in September is surprising considering the last year's low base effects in the segments "electricity, gas, and water production and supply” and "mining and quarrying” which were conducive to higher annual production growth rate between August and September. The structure of the September production indicates that one of the main reasons for its disappointing result in September was the downturn in manufacturing in the Eurozone and Germany, due to the slowdown in global trade (see MACROmap of 24/9/2018). This is reflected by a visible (and stronger than calendar effects would suggest) slowdown of production growth in some export-oriented branches ("other transport equipment” (4.3% YoY in September vs. 30.5% in August), "machinery and equipment” (7.9% vs. 17.7%), and "electrical equipment” (7.2% vs. 16.6%). Another reason for weaker production data is, in our view, the growing barrier in the form of shortage of skilled labour, reflected by business survey results and yesterday's data on corporate employment in September 2018 (see MACROpulse of 16/10/2018).
Continuously high growth rate of public investments
According to GUS data, the construction-assembly production dynamics decreased to 16.4% YoY in September vs. 20.0% YoY in August. Like in the case of industrial production, the decline in construction-assembly production was stronger than it would result from statistical effects. We believe that this is largely due to the above-mentioned supply-side constraints.
The data structure of data on the construction-assembly production continue to signal fast growth of public outlays on infrastructure, supported by strong growth of investments implemented by local governments (in September production growth in the section "civil engineering facilities” amounted to 23.1% YoY vs. 30.5% in August). We maintain our view that the growth of public investments in the infrastructure peaked in Q1 2018. Increase in construction-assembly production dynamics was also recorded in the section "construction of buildings” (18.6% YoY in September vs. 14.6% in August), which points to continuously high activity in residential construction.
Further slowdown of GDP growth in Q3
The average dynamics of industrial production decreased to 5.9% YoY in Q3 vs. 7.0% in Q2 and the dynamics of construction and assembly production decreased to 18.3% vs. 21.5%. This supports our forecast of GDP growth rate in Q3 2018 (4.4% YoY vs. 5.1% in Q2).
The data on industrial production and construction-assembly production, which have been released today, are slightly negative for PLN and Polish bond yields.