Surprising acceleration of production in February
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 6.9% YoY in February vs. 6.1% in January, running significantly above our forecast (3.5%) and the market consensus (4.8%). The seasonally-adjusted industrial production increased by 1.7% MoM in February.
The acceleration of industrial production growth in February is especially surprising in the context of unfavorable statistical effects limiting this growth, as unfavourable difference in working days (in February the number of working days was the same as in 2018, while in January 2019 it was higher by 1 day from the year before) was conducive to a decrease in the annual dynamics of industrial production between January and February. Furthermore, the last year's high base effect (in February 2018 seasonally-adjusted production rose by 1.5% MoM) was conducive to lower dynamics of industrial production.
In addition, the temperature in February 2019 was markedly higher than the year before which recorded severe frost. This resulted in lower production of heat, reflected by a decrease of production in the category "generation and supply of electricity, gas, steam, and hot water” from 15.1% YoY in January down to 2.6% in February.
Polish exports not afraid of the slowdown in Germany
The structure of industrial production growth indicates that Polish industry is resistant to the slowdown of economic growth in Poland's main trade partner, as, according to the results of business surveys (PMI), Germany recorded in February the fastest decrease in new export orders since October 2012 and the first since April 2013 decline in output in manufacturing. Surprising in this context are high production dynamics in the export-oriented branches of Polish manufacturing: "other transport equipment” (20.5% YoY in February), "electrical equipment” (13.8%), "computers, electronic and optical products” (12.6%), and "motor vehicles, trailers and semi-trailers” (9.7%).
Such data may point to structural changes in Polish manufacturing (such as growing competitive advantages of Polish companies abroad, geographic reorientation of exports, or shifts in the global value chains) enabling to maintain a relatively fast pace of production growth despite the downturn abroad. According to GUS business surveys, the indicators showing a company's position vs. the competition in the EU and other foreign markets recorded in Q1 an increase compared to the Q4 2018 values, though they were not high levels against the historical background.
Another explanation for the good result of the export-oriented branches are still high (though decreasing) production backlogs. Polish manufacturing companies reported in Q1 that duration of production assured by current order-book levels amounted, on the average, to 10.4 months. Such safety buffer was only slightly lower than the average one in 2017-2018 (10.6 months). Similar situation as in the Polish manufacturing can be observed in the Czech Republic (see MACROmap of 18/3/2019).
Upside risk to the forecast of GDP growth in 2019
Assuming, in line with our baseline scenario, that the slowdown currently observed in global trade is temporary and H2 2019 will see the acceleration of global economic growth, the factors outlined above will enable to maintain relatively high dynamics of industrial production in Poland in the coming months. The launch of the fiscal package (see MACROmap of 11/3/2019) will be an additional impulse supporting manufacturing activity (especially with regard to consumer goods). The February data on industrial production pose an upside risk to our forecast of economic growth in Q1 (3.5% YoY vs. 4.9% in Q4 2018). They are also slightly positive for PLN and Polish bond yields.