Industrial production growth rate markedly below 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 increased to 3.8% YoY in December vs. 1.4% in November, running significantly below the market expectations (6.1%) and our forecast (6.8%). Seasonally adjusted industrial production decreased by 2.9% MoM vs. a 1.5% increase in November, marking the sharpest monthly decline since December 2013.

Statistical effects and one-off factors boosted production dynamics

The main source of the increase of annual production growth between November and December was the statistical effect in the form of a favourable difference in the number of working days (in November 2019 the number of working days was 1 day lower from 2018 while in December 2019 it was 1 day higher than the year before). Conducive to higher industrial production dynamics in December compared to November was also a sharp production increase in the category “other transport equipment” (+41.5% YoY in December vs. 14.4% in November). We estimate that it has raised the annual industrial production dynamics by ca. 0.6 pp. The sharp increase in production in this category is most likely due to the execution of a large order which has boosted the value of sold production in this segment and is therefore temporary.

Slowdown in construction limits production growth rate

December recorded a decrease in the production dynamics in some segments responsible for the supply of raw and other materials used in construction projects, i.a. in: “manufacture of coke and other petroleum refinery products”, “manufacture of rubber and plastic products”, and “metal products”. In our view, this points to an increasing negative impact of the slowdown in domestic construction on Polish manufacturing activity, due to the end of cycle in public investments (see MACROpulse of 21/1/2020). We believe that the slowdown in Polish construction is sustained and in subsequent months will continue to negatively impact industrial production growth.

Uncertain outlook for industrial production

The scale of the seasonally-adjusted monthly dynamics of industrial production may suggest that it is losing resilience to the deteriorating external environment and to the slowdown in Polish construction. However, considering the historically high volatility of the monthly industrial production dynamics, it will be possible to verify this hypothesis only after this trend has been confirmed by data for subsequent months. Consequently, we maintain our economic growth scenario which assumes that GDP dynamics will decrease to 3.3% YoY in Q1 vs. 3.5% in Q4.

In our view, today’s data on industrial production are slightly negative for PLN and bond yields.

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