Base effects slow down industrial production growth

In accordance with the GUS data, the volume of industrial production sold in enterprises employing more than 9 people increased by 18.4% YoY in June compared to 29.8% in May, running below market expectations (19.0%) and our forecast (21.1%). The main reason for the sharp slowdown in industrial production between May and June were base effects related to the unfreezing of the economy a year ago – in June 2020, seasonally adjusted output grew strongly (by 9.4% MoM). A statistical effect in the form of a favourable difference in the number of working days (in May, the number of working days was one less than in 2020, while in June it was the same as in the previous year) limited the downward impact on industrial production growth between May and June. Seasonally-adjusted industrial production increased by 0.2% between May and June. We assess that the industrial production level in June was already 7.1% higher than in the period before the outbreak of the pandemic (i.e. February 2020).

Increasingly balanced industrial production growth

Strong statistical effects mentioned above make it difficult to assess trends in individual industry branches precisely - growth rates remained at double-digit levels in June, but declined significantly. The highest rates of output growth were recorded in categories with a significant share of export sales in the revenues. We estimate that production in export-oriented branches rose in June by 23,5% YoY comparing to a 54,1% growth in May. Growing production in export industries is supported by the currently observed strong recovery in world trade. Another factor supporting production in export industries is Poland's upward shift in international supply chains (see MACROmap of 14/6/2021). Increases in industrial production were also recorded in other processing categories. We estimate that production growth in construction-related sectors stood at 22.6% YoY in June vs. 34.4% in May, while in other branches (except for exports- and construction-related categories), production increased by 14.3% YoY in June comparing to 16,2% in May.

It is worth noting that in recent months we have seen a gradual change in the structure of production growth. In February this year, export branches alone accounted for almost all the growth in industrial production, while in subsequent months they lost relative importance to nonexports- and nonconstruction-related industries. In June, the contributions of these two segments to production growth practically equalled, reaching ca. 8 p.p. each. A balanced structure of production growth is going to support the sustainability of the recovery in Polish industry.

Supply barriers still weigh on industry

We believe that in the coming months, the recovery in industrial production will be limited by increasing supply barriers. According to a GUS business survey, the percentage of industrial production companies reporting shortages of raw materials, components and semi-finished products (for non-financial reasons) was 25.3% in June, the highest in the survey's history. This means that in the conditions of a strong inflow of new orders (according to the PMI survey, see MACROpulse of 1/7/2021), some companies are facing the necessity to limit production due to a shortage of materials. This problem is reflected in the stagnant growth of seasonally-adjusted industrial production in June (see above). Supply constraints will, in our view, be a contributing factor to an increase in gross fixed capital formation by companies in some manufacturing industries in H2 this year. This is consistent with our forecast of an increase in total investment growth from 1.3% in Q1 to 9.5% on average in H2 2021.

Today's industrial production data represents a slight downward risk to our forecast, according to which Poland's GDP will grow by 12.0% YoY in Q2 vs. a 0.9% decline in Q1. At the same time, the data is neutral for the PLN and yields on Polish bonds.

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