Production is falling faster than during the global financial crisis
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 dropped to 2.3% YoY in March vs. a 4.9% increase in February, running below the market consensus (-1.7%) and our forecast (4.5%). Seasonally adjusted industrial production decreased by 7.2% MoM, recording a higher rate of decline than during the global financial crisis (November 2008).
A slump in the production of the export-oriented branches
The reason for the sharp decline in production in March were the broken by the spreading COVID-19 pandemic supply chains which have led to the reduction of production in many plants and in extreme cases resulted in the suspension of their operations (i.a. in some car factories). Consequently, the sharpest decline in production was observed in branches with a relatively large percentage of exports in sales, i.a. in the segments: “motor vehicles, trailers and semi-trailers” (-28.6% YoY), “leather and leather products” (-21.4% YoY), “furniture” (-14.7%), “textile products” (-13.8% YoY), and “machinery and equipment” (-10.4% YoY). We estimate that the branches with a relatively large export exposure have lowered the annual dynamics of industrial production between February and March by 6.5 percentage points.
Construction is going strong
Especially noteworthy in the data structure are relatively high, compared to other branches, production dynamics in segments responsible for the supply of raw materials and consumables used in construction projects, i.e. “manufacture of metal products” (4.3% YoY) and “manufacture of other non-metallic products” (1.7% YoY). This shows that the construction sector has so far remained resilient to the COVID-19 pandemic, which is consistent with our macroeconomic scenario (see MACROmap of 14/4/2020).
The branches which have benefitted from the COVID-19 pandemic
It is worth noting that some branches of industrial production have recorded a visible increase in output due to the COVID-19 pandemic. Industrial production has increased the most in the segment “pharmaceuticals” (39.7% YoY), due to a surge in demand for such production during the pandemic. An increase has also been recorded i.a. in “foodstuffs” (7.1%), “paper and paper products” (9.9%), and “chemicals, chemical products” (6.9%), in our view largely due to the mass purchases made by households for fear of the pandemic.
In the whole Q1 the average dynamics of industrial production dropped to 1.2% YoY vs. 3.0% in Q4. Thus, the data pose a downside risk to our forecast, in which the dynamics of the Polish GDP will decrease to 0.1% YoY in Q1 and will drop to -11.7% in Q2.
Today’s data on industrial production in March are slightly negative for PLN and Polish bond yields. At the same time, today’s data support our forecast, in which the NBP will once again cut interest rates by 50bp in May.