Shift of holiday breaks in car factories boosted 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 rose to 10.3% YoY in July vs. 6.8% in June, running above the market consensus (9.5%) and below our forecast (11.2%). Seasonally-adjusted industrial production has not changed compared to June 2018. The main factor behind the increase in industrial production dynamics between June and July was a favourable difference in the number of working days (in June 2018 the number of working days was the same as in 2017, while in July 2018 it was one day higher than last year). The high dynamics of sold production growth in July also resulted from the last year's low base effects (in July 2017 seasonally-adjusted production decreased by -1.3% MoM).

In addition, the acceleration in industrial production growth in July was higher than it would result from the difference in the number of working days. In our view, the increase in manufacturing activity in July 2018 was supported by shorter than last year holiday breaks in car factories. Consequently, the annual growth rate of production in the branch "motor vehicles, trailers, and semi-trailers” can be expected to have markedly increased in July 2018. The effect of the shifts of holiday breaks will abate in August, therefore the increase in annual production dynamics in this category was most probably temporary.

Base effects limited growth of activity in construction

According to GUS data, the construction-assembly production dynamics decreased to 18.7% YoY in July vs. 24.7% YoY in June. The production growth rate has decreased despite the above-mentioned statistical effect in the form of a favourable difference in the number of working days. The reason for this was mainly the last year's high base effects (construction-assembly production rose by 4.6% MoM in July 2017). Seasonally-adjusted construction-assembly production decreased in July 2018 by 1.0% MoM.

Due to the high base effects, the construction-assembly production structure recorded deceleration in the categories "civil engineering” (down to 20.6% YoY in July vs. 26.9% in June) and "construction of buildings” (down to 14.1% YoY vs. 33.6%). In turn, growth in the categories "specialised construction activities” accelerated to 21.9% YoY in July from 10.4% in June. Considering the nature of activities included in this third category (i.a. works related to site preparation and finishing works), this points to further recovery in residential construction, also signaled by business sentiment indicators for this sector. In addition, such production structure supports our view that the growth of public investments in the infrastructure peaked in Q1 2018 and, due to last year's high base effects and supply-side constraints (shortage of skilled labour force), will not increase in the coming quarters but will stay at a relatively high levels.

Further slowdown of GDP growth in Q2

The aggregate impact of the data on industrial production and construction-assembly production, which have been released today, is neutral for PLN and Polish bond yields. At the same time they do not alter our forecast of GDP growth rate in Q3 2018 (4.8% YoY vs. 5.1% in Q2).

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