Positive surprise in industrial production data

According to GUS data, the volume of industrial production sold by businesses employing more than 9 persons expanded by 7.8% YoY in October, down from 8.8% in September, running below market expectations (5.3%) and our forecast (5.8%). The decline in industrial output growth between September and October is attributable to a statistical effect related to the unfavourable difference in the number of business days (October 2021 had one business day fewer than October 2021, while September 2021 had the same number as September 2020). Adjusted for seasonal factors, in October, industrial production grew by 2.0% MoM (the highest monthly increase since this March). We estimate that the level of industrial output in October was 10.1% higher than before the pandemic (i.e. February 2020).

Energy industry boosted production

The significantly better-than-expected data on production followed from a considerable acceleration in production growth in the "electricity, gas, steam and hot water generation and supply" category from 22.1% YoY in September to 40.6% in October, which improved total production growth by approx. 1.4 pp. between September and October. It is difficult to find a clear explanation for such a substantial rise in production in this category. In our opinion, it could be related to the GUS’ difficulties with estimating the deflator (i.e. change in prices) in the current environment of soaring energy prices. We believe that this indicator (8.5% YoY in October vs. 5.9% in September) may have been understated, which would drive up the real production growth in the energy sector in October.

First decline of production in export branches since the outbreak of the pandemic

Sector-wise, particularly noteworthy is the situation in categories having a significant share of export sales in revenues. We estimate that in October, production in exporting sectors contracted by 2.4% YoY compared with a 1.1% growth in September, thus recording the first YoY decrease since the first lockdown in the first half of 2020. Supply bottlenecks were the main factor hampering production growth, as indicated by the October PMI for Polish manufacturing (see MACROmap of 2/11/2021). We believe that the intensifying pandemic wave observed in many countries will hinder the elimination of bottlenecks in the production process in the short term due to unforeseen staff absences and the need for adaptations in working conditions (see MACROmap of 25/10/2021). We stand by our scenario whereby supply constraints will ease off in the medium term, and activity in manufacturing will rebound. Given the contraction of production in exporting sectors, the element stabilizing activity in the industry is the rapid growth of production in sectors focused on the domestic market (13.7% YoY in October vs. 13.4% in September).

Today's data on industrial production poses an upside risk to our forecast, whereby Poland's GDP will increase by 4.8% YoY in Q4 compared with a 5.1% growth in Q3. The data is slightly positive for the PLN exchange rate and Polish bond yields.

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