Industrial production markedly above expectations

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 rose to +0.5% YoY in June vs. -17.0% in May, running significantly below the market consensus (-6.9%) and above our forecast (-7.5%). Seasonally-adjusted industrial production increased by 9.7% MoM in June. Consequently, the seasonally-adjusted production stood in June at a level that was ca. 10% lower than before the outbreak of the COVID-19 epidemic.

Wide range of recovery in Polish manufacturing

June recorded a wide range of recovery in Polish manufacturing. The annual industrial production dynamics increased between May and June in all the categories except “production of beverages” and “electricity, gas, steam, and hot water supply”. Twenty one of the thirty four manufacturing branches recorded an increase in production in year-on-year terms.

Mostly responsible for the recovery in total industrial production was the resumption of activity in the automotive branch. The Opel factory in Gliwice resumed operations on 8 June and production in Tychy was restored on 16 June. Consequently, the production dynamics in the category: ”motor vehicles, trailers and semi-trailers” rose from -57.9% YoY in May to -15.2% in June, which was conducive to an increase in total production by 5.0 percentage points between May and June. The second branch that has contributed to a surge in total industrial production (by 2.0 pp between May and June) were “food products”. The production in this category rose from -6.7% YoY in May to +6.3% in June.

Interestingly, despite the government’s decision to temporarily close more than 10 mines at the beginning of June, the production in the category “mining and quarrying” rose to -6.5% YoY in June vs. -14.4% in May.

Export branches are catching up

Due to a marked recovery in production in the automotive branch, where most production is directed abroad, June saw a reversal of the tendencies observed in recent months. Between March and May, due to broken international supply chains by the spreading COVID-19 pandemic, production in the export-oriented branches was decreasing faster than in the remaining categories. On the other hand, June saw a situation where three segments of manufacturing (export branches, branches responsible for the supply of materials used in construction projects, and the remaining categories) recorded similar production dynamics (close to zero).

Upside risk to GDP, investments still doing poorly

Today’s significantly-better-than-expected data on industrial production pose an upside risk to our forecast of GDP decrease by 10.5% in Q2 2020. At the same time we should point out that despite the increase in total industrial production in year-on-year terms, the production in the category “investment goods” decrease by 8.6% YoY in June. This supports our scenario of a slump in gross fixed capital formation in 2020. We will present our revised forecasts in the next MACROmap, after seeing the data on retail sales and construction-assembly production to be released tomorrow.

Today’s data on industrial production in June are slightly positive for PLN and yields on Polish bonds.

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