Strong increase in production caused by last year’s low base effects
In accordance with the GUS data, the volume of sold production of industry in enterprises employing more than 9 people increased by 44.5% YoY in April comparing to +18.9% YoY in March, running in line with the market consensus and above our forecast (43.0%). Last year’s extremely low base effect was the main reason behind a strong industrial production growth in April comparing to March. This is because April 2020 saw the sharpest decline in production in the recorded history (by 20.7% MoM) in the wake of the COVID-19 pandemic and related restrictions and disrupted global supply chains.
Bottlenecks curb the activity in the industry
Strong statistical effects mentioned above make it difficult to assess trends in individual industry branches precisely. Despite a clear decline in annual production growth between March and April, the activity accelerated most in the categories with a significant share of export sales in the revenues. We estimate that production in export-oriented branches rose by 117.1% YoY comparing to a 38.2% growth in March. This means that industrial production in those categories doubled in April 2021 comparing to April 2020. With borders closed last year in spring and global supply chains disrupted, low base effects are particularly visible in those very branches. Furthermore, those categories have benefited from the recovery in global trade, which can be seen at present. However, production rose sharply also in the remaining manufacturing categories. We estimate that production growth in construction-related sectors stood at 40.0% YoY in April vs. 18.8% in March, while in other branches (except for exports- and construction-related categories), production increased by 17.4% YoY comparing to 8.4% in March.
What is slightly surprising as regards today's data is a decline in seasonally-adjusted production (-0.4%) in April comparing to March. This means that bottlenecks in global supply chains, i.e. shortages in raw materials, materials and semi-finished products, whose existence was pointed to in business surveys curb the recovery in the Polish industry (see MACROmap of 26/04/2021). For example, due to supply barriers (lack of semi-conductors required to continue production), production in a Volkswagen factory had to be stopped in April.
Base effects strongly support retail sales
In accordance with the GUS data published today, nominal retail sales reported by businesses having more than 9 employees went up by 25.7% YoY in April comparing to a 17.1% increase in March, running below the market consensus (27.2%) and our forecast (29.5%). Retail sales in constant prices increased by 21.1% YoY in April comparing to an increase of 15.2% in March. Similarly to the industrial production data, also the data on retail sales are under a strong, positive influence of low base effects. However, recovery in trade was curbed due to restrictions that were in force in April 2021 (shopping malls and large furniture and home improvement stores were only opened at the beginning of May). As the number of days with restrictions in force was higher in April than in March, seasonally-adjusted retail sales in constant prices in April fell by 6.8% comparing to March.
As regards the industry, it is impossible to maintain a strong production growth year on year. From May 2020 onwards, we were able to see seasonally-adjusted production increasing strongly, which, as a statistical factor, will be driving the year-on-year industrial production growth down. Nonetheless, the latter will remain on a two-digit level. However, when it comes to the trade, gradual abatement of the pandemic and the related easing of restrictions combined with the currently observed strong growth in real wage fund will be supporting retail sales in the months to come. Consequently, we expect the seasonally-adjusted retail sales in constant prices expressed in monthly terms to start growing significantly from May onwards.
Today’s data on industrial production and retail sales combined with construction-assembly production data and the data on employment and average salary in the enterprise sector published last week (see MACROpulses of 20/05/2021 and 21/05/2021) do not change our GDP growth forecast for Q2 2021 (9.2% YoY vs. -1.3% in Q1). At the same time, we believe that today’s data on retail sales and industrial production are neutral for the PLN and the yields on Polish bonds.