The business sentiment indicator for Polish manufacturing (PMI) dropped to 53.3 pts in May vs. 53.9 pts April, running in line with the market expectations and slightly above our forecast (53.2 pts). As a result, it reached the lowest level since August 2017.

Conducive to the indicator decrease by 0.5 pp was lower value of the output sub-index (53.2 pts in May vs. 55.4 pts in April). In addition, the employment growth rate slightly slowed down in May, contributing to PMI decline by 0.1 pts. The effect of the changes in the remaining sub-indices had a limited (lower from 0.1 pts) impact on the value of PMI.

Especially noteworthy in the data structure is the drop (sub-index below 50 pts) of new export orders. Polish manufacturing saw a decline in export orders already twice in the last three months. This trend is consistent with the slowdown in global trade recorded by business surveys abroad. May saw deterioration of sentiment in Germany and in the Eurozone (see MACROmap of 28/5/2018). In addition, the released today data on PMI in China pointed to a decline in export orders for a second month in a row. The impact on Polish exports of the observed in recent weeks PLN weakening vs EUR, offsetting weaker foreign demand, can be assessed precisely no sooner than in a few months' time. Interestingly, the sub-index concerning new total orders in Polish manufacturing decreased by only 0.1 pts in May, which means that stronger domestic demand has almost completely offset the decline in foreign orders.

Today's business survey points to continuing supply-side constraints in Polish manufacturing, caused by high capacity utilization and difficulties in finding skilled labour. Production backlogs have increased at the fastest rate since January 2015 and delays in deliveries were growing the fastest since December 2010.

The likely slowdown in the growth of exports of goods from Poland in the coming months, signaled in PMI surveys (both that concerning Poland as well as China, Germany and the Eurozone), is consistent with our scenario of a gradual decrease in GDP dynamics in subsequent quarters. At the same time, due to a higher-than-expected estimate of GDP in Q1, the expected by us trajectory of GDP growth rate in the subsequent quarters of 2018 will be raised. The value of the Polish PMI in April-May period (53.6 pts) stood slightly below its average value in Q1 (54.0 pts), which supports our scenario. We will present our revised macroeconomic scenario on 11 June.

Today's data are neutral for PLN and yields on Polish bonds.

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