Increasingly slower decrease in Polish manufacturing activity
Polish manufacturing PMI rose to 47.2 pts in June vs. 40.6 pts in May, running above the market expectations (46.5 pts) and slightly below our forecast (47.3 pts). Despite its markedly higher value in June compared to May, the index continues to stand significantly below the 50 pts threshold dividing expansion from contraction of activity. In other words, Polish manufacturing activity continues to decrease, although the pace of this decrease is increasingly slower.
Delivery times become shorter as administrative restrictions are being lifted
The index increase resulted from higher contributions of 4 of its 5 sub-indices (for new orders, output, employment, and inventories), while lower contribution of suppliers’ delivery times had opposite impact. However, it is worth noting that lower contribution of suppliers’ delivery times means shorter delivery times, which in the present situation points to a gradual restoration of the supply chains that have been broken by the pandemic. It is worth recalling that at the initial stage of the pandemic longer delivery times resulted in the overestimation of PMI (see MACROpulse of 1/4/2020).
Capacity utilization will take long to return to pre-pandemic levels
Noteworthy in the data structure is a sharp increase in the sub-index for new orders, including new export orders, although they continue to stay visibly below the 50 pts threshold. Thus, the rate of decline in new orders has markedly decreased in June compared to May. We believe that in the coming quarters the recovery in global trade will be slow. This view is supported by data on Chinese manufacturing PMI that have been released today and pointed to further decrease in new foreign orders while signaling at the same time that the source of the recovery observed now in Chinese manufacturing is domestic demand. In our view, the continuing decline in new orders indicates that capacity utilization in Polish manufacturing will not return to the levels from before the pandemic yet for a long time. In turn, low capacity utilization will limit the room for investment growth in subsequent quarters (see MACROmap of 8/6/2020)
More and more optimism in Polish manufacturing
Employment in Polish manufacturing recorded further decline in June, but this decline was slower than in May. In our view, this reflects the growing optimism of the surveyed companies signaled by an increase in the indicator of future production in the horizon of 12 months above the 50 pts threshold (the highest since February 2020).
Data have confirmed sharp decrease in Polish GDP in Q2
Today’s business survey results point to continuing negative impact of the COVID-19 epidemic on Polish manufacturing activity, although some effects of its gradual unfreezing can already be seen. The average PMI value amounted to 39.9 pts in Q2 vs. 46.0 pts in Q1. The business survey results support our forecast of GDP dynamics in Q2 (-10.5% YoY vs. 2.0% in Q1). At the same time, the data structure pointing to further decrease in new orders is consistent with our forecast in which the Polish GDP will reach the pre-pandemic level no sooner than in H1 2022.