PMI still indicates a decline in activity in Polish manufacturing

Polish manufacturing PMI rose to 48.0 pts in December vs. 46.7 pts in November, running above our forecast (46.5 pts) and the market consensus (46.8 pts). Thus, the index has for fourteen months in a row stayed below the 50 pts threshold dividing expansion from contraction of activity. The increase in PMI resulted from higher contributions of three of its five sub-indices (for new orders, output, and suppliers’ delivery times) while lower contribution of the sub-indices for stocks of goods purchased and employment had an opposite impact. Although both the December PMI index and its main components point to a continuing decline in activity in Polish manufacturing, in December the pace of this decline markedly decreased. This is surprising in the light of the slowdown in the growth of activity in construction recorded in recent months (see MACROpulse from 23/12/2019), as well as in the light of December PMI data for German manufacturing, which signaled a faster decline in production, employment and backlogs of work with a slightly slower decline in new total and export orders.

Manufacturing still resilient to the downturn abroad

Noteworthy in the structure of the December PMI for Polish manufacturing is an increase (the first since August this year) in the Future Output Index (over a 12-month horizon). This signals an improvement in the opinions of the surveyed companies regarding activity in the coming quarters. It also indicates that the factors of resilience of Polish manufacturing to the slowdown in global trade and German manufacturing that we have identified (see MACROmap from 1/04/2019) are still present. This assessment is supported by the stabilization of the guaranteed production period in Polish manufacturing with the current domestic and foreign order portfolio at a high 10-month level. Despite the improvement in assessment of future output, we believe that in the coming quarters a decline in public investment and a slowdown in global trade, including the automotive industry, will limit the scale of activity in Polish manufacturing. This assessment is supported by the data on the business climate in manufacturing in China (PMI) published today. They point to deterioration of assessment regarding current orders (including export orders) with a minor increase in the Future Output Index.

Today's data on the business climate in Polish manufacturing are slightly positive for PLN and Polish bond yields.

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