Production returning fast to pre-pandemic levels

In accordance with GUS data, the sold production of industry in enterprises employing more than 9 people increased by 1.1% YoY in July vs. a 0.5% increase in June, running significantly above the market consensus (-1.2%) and our forecast (-0.1%). The dynamics of industrial production increased between June and July despite an unfavourable difference in the number of working days (in June 2020 the number of working days was higher by 2 than in 2019, while in July 2020 it was the same as the year before) and the abatement of the last year’s low base effect which boosted production dynamics in June. Seasonally-adjusted industrial production increased by 6.2% MoM in July. Consequently, the seasonally-adjusted production stood in July at a level that was ca. 3.5% lower than in February 2020, namely in the last month before the strong pandemic effect on production. It is noteworthy that in April, when the strongest decline in production was recorded, this gap amounted to 26.5%, which points to a fast pace of returning of activity in Polish industry to pre-pandemic level.

Export branches as the main driver of production growth

July, like June, recorded further recovery of activity in production plants. Segments where the dynamics of industrial production increased the most included i.a. “motor vehicles, trailers and semi-trailers” (0.6% YoY in July vs. -15.2% in June – the effect of the resumption of activity in car factories), “leather and leather products” (1.6% vs. -8.2%), “computers, electronic and optical equipment” (15.3% vs. 7.0%), “clothing” (5.8% vs. -0.1%), and “furniture” (24.2% vs. 19.2%), namely in categories with a significant share of export sales in revenues. Consequently, export branches were the main source of higher production dynamics in July. In turn, production dynamics in the remaining segments, including branches responsible for the supply of source materials and materials used in construction projects, were in general lower in July than in June. This is consistent with our view from the month before pointing to the deterioration of outlook for construction (see MACROpulse of 21/7/2020). Tomorrow’s data on construction-assembly production (we forecast that it dropped by 6.1% YoY in July vs. a 2.4% decrease in June) are likely to confirm a decline in construction activity.

H2 2020 will bring a slump in investments

Noteworthy in the data structure is further production decline in the category “investment goods” (-3.3% YoY in July vs. -8.6% in June). This supports our scenario assuming a slump in gross fixed capital formation in H2 2020 (-15.5% YoY in Q3 and -17.5% in Q4), which will limit the Polish GDP dynamics in H2 2020. Consequently, despite the visibly-better-than-expected data on industrial production, we maintain our forecast, in which the Polish GDP will decrease by 3.8% in 2020 vs. a 4.1% increase in 2019 and will increase by 3.6% in 2021.

Today’s better-than-expected data on industrial production in July are slightly positive for PLN and yields on Polish bonds.

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