The recovery in industrial production has visibly slowed down in August

In accordance with GUS data, the sold production of industry in enterprises employing more than 9 people increased by 1.5% YoY in August vs. a 1.1% increase in July, running below the market consensus (2.8%) and above our forecast (0.9%). The dynamics of industrial production increased between July and August despite an unfavourable difference in the number of working days (in July 2020 the number of working days was the same as in 2019, while in August 2020 it was one day lower than the year before – including one day off for holiday falling on a Saturday). Seasonally-adjusted industrial production increased by 0.6% MoM in August. Consequently, the seasonally-adjusted production stood in August at a level that was ca. 2.7% lower than in February 2020, namely in the last month before the strong pandemic effect on production. This indicates that the pace of Polish manufacturing activity returning to pre-pandemic level has markedly slowed down in August.

Export branches continue to be the main driver of production growth

August, like July, recorded further recovery of activity in segments with a significant percentage of export sales in revenues. At the same time, they remained the main source of industrial production growth. Further increase in the annual production dynamics was recorded i.a. in “textile products” (4.0% YoY in August vs. -4.2% in July), “computers, electronic and optical equipment” (20.1% YoY vs. 15.3%), “motor vehicles, trailers and semi-trailers” (4.4% vs. 0.7%) and “electrical equipment” (10.3% vs. 7.0%). However, it is worth noting that the pace of the recovery in production in the export branches has in general visibly slowed down in August. Noteworthy in the data structure are also higher production dynamics in branches responsible for the supply of source materials and materials used in construction projects, namely i.a. in the categories “manufacture of metal products” (0.4% YoY in August vs. -2.0% in July) and “other non-metallic products (0.1% vs. -2.8%). It is worth noting that higher production dynamics in these branches were the reason for higher growth rate of industrial production between July and August. However, this does not alter our view that subsequent months will bring further deterioration in construction. The Monday’s data on construction-assembly production (we forecast that it dropped by 12.9% YoY in August vs. a 10.9% decline in July) are likely to confirm further decline in construction activity.

Data on production support our profile of economic recovery in Poland

Today’s data pointing to the slowdown of the recovery in industrial production in Poland support our view that after the initial sharp increase the pace of economic activity returning to pre-pandemic level will markedly slow down in the coming months. This is in line with the assumed by us Nike-shaped profile of the economic recovery in Poland (see MACROmap of 6/7/2020). We forecast that the GDP growth rate will increase to -2.0% YoY in Q3 vs. -8.2% in Q2, while in Q4 it will drop to -2.8% YoY. Consequently, in the whole 2020 the Polish GDP will decrease by 2.8% YoY vs. a 4.1% increase in 2019. We believe that the Polish economy will attain the pre-pandemic level of economic activity no sooner than in H2 2021.

Today’s weaker-than-expected data on industrial production in August are slightly negative for PLN and yields on Polish bonds.

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