Industrial production growth above expectations

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 5.6% YoY in September vs. a -1.3% in August, running above our forecast (4.3%) and the market expectations (5.0%). The increase in the annual dynamics of industrial production in September compared to August resulted from the statistical effect in the form of a favourable difference in the number of working days (in August 2019 the number of working days was 1 day lower from 2018 while in September 2019 it was higher by 1 day than the year before). The production dynamics in September were also supported by the last year’s low base effect (seasonally adjusted production decreased by 0.7% MoM in September 2018). Seasonally adjusted production increased by 1.2% MoM in September 2019.

Export branches (temporarily) in the lead

It is worth pointing out that branches which recorded the highest annual production dynamics in September included mainly segments with a large percentage of export sales in revenues: “other transport equipment” (44.1% YoY), “electrical equipment” (14.4%), “computers, electrical and optical equipment” (10.0%), “furniture” (8.3%), motor vehicles, trailers and semi-trailers” (7.3%). The significant acceleration in production growth in the category “other transport equipment” (from 2.2% in August) most likely resulted from the shifts of production between months and is an outlier.

Nonetheless, the acceleration observed in the export branches is contrasted by the September business survey results in Germany and in the Eurozone (PMIs) which pointed to the deepening of recession tendencies in manufacturing in countries being Poland’s main trade partners. We therefore believe that it is only a temporary phenomenon (supported by the aforementioned statistical effects) and subsequent months will see further deterioration in Polish export branches. This view is supported by the results of PMI and GUS business surveys (pointing to a continuing decrease in orders) and NBP surveys (see below).

The structure of data on industrial production shows that the slowdown in domestic construction has an increasingly negative impact on activity in the Polish industry. Industrial production dynamics in branches supplying construction stood at relatively low levels in September – “metals” (down by 1.3% YoY) and “other non-metallic mineral products” (up by 0.8% YoY).

Unfavourable outlook for Polish industry

In the light of the quarterly business survey by NBP (Quick Monitoring, October 2019), the prospects for the Polish industry are looking dim, especially in exports. The indicator of the demand outlook for Q4 recorded a decrease among non-exporters and non-specialized exporters. Although specialized exporters forecast the stabilization of outlook for the overall demand, they do indicate however a clear deterioration of the export forecasts for Q4 2019. It is worth pointing out that enterprises view the deterioration in the German economy as a more important threat to exporters (the specialized ones in particular) and importers than Brexit and trade tensions between the US and China and the US and Europe, In our view, the downturn in German manufacturing continues to be the biggest risk to the outlook for industrial production growth in the coming months.

Today's data on industrial production do not alter our forecast of GDP growth in Q3 (4.3% YoY) and in the whole 2019 (4.4%). They are also slightly positive for PLN and yields on Polish bonds.

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