PMI at the lowest since the financial crisis

Polish manufacturing PMI dropped to 42.4 pts in March vs 48.2 pts in February, running below the market consensus (46.0 pts) and our forecast (44.0 pts). Thus, the index has reached the lowest level since April 2009, namely since the global financial crisis. In addition, it has been the sharpest monthly decline of the index in its history.

The real scale of the deterioration is bigger

The index decrease resulted from lower contributions of 4 out of its 5 sub-indices (for new orders, output, employment, and inventories), while higher contribution of suppliers’ delivery times had opposite impact. In March the increase in suppliers’ delivery times compared with the previous month was the biggest in the survey history. However, it is worth noting that the increase in delivery times resulted here not from insufficient production and overloaded logistic channels unable to cope with a sharply growing demand but from broken global supply chains due to the COVID-19 pandemic. According to the statement, some surveyed companies were forced to suspend production for lack of materials. Thus, the higher contribution of this sub-index does not reflect improved sentiment. It means that the March PMI value is overestimated and in reality the scale of the deterioration in Polish manufacturing is bigger. Assuming that the suppliers’ delivery times sub-index had not changed between February and March, the manufacturing PMI would have been by 1.7 pts lower than it actually was.

Sharp slowdown in Polish manufacturing

Especially noteworthy in the data structure is also the sharpest in the survey history monthly decline in the sub-indices for output, new orders, and employment. This shows that amid slump in production and collapse of new orders, including new export orders, the companies started to strongly reduce employment. Such sharp monthly decline in the employment sub-index may signal that the companies do not expect their situation to improve in the coming months. This view is supported by the decrease of the indicator of future production (in the horizon of 12 months) to the lowest level in history.

Q1 with still positive GDP dynamics

The average value of PMI amounted to 46.0 pts in Q1 vs. 46.8 pts in Q4 2019. This supports our forecast, in which the dynamics of the Polish GDP will decrease to 1.4% YoY in Q1 vs. 3.2% in Q4. At the same time, today’s weaker-than-expected PMI reading is slightly negative for PLN and yields on Polish bonds.

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