Industrial production nearly 5% above the pre-pandemic level

In accordance with the Polish Central Statistical Office's (GUS) data, the volume of sold production of industry in enterprises employing more than 9 people increased by 2.7% YoY in February vs. +0.9% in January, running below the market consensus (3.5%) and our forecast (4.2%). The main reason behind the acceleration in the industrial production growth between January and February was a favourable difference in the number of working days (in January 2021 there were two working days less than in January 2020, while for February 2021 the figure was the same as in 2020). Seasonally-adjusted industrial production increased by 0.4% between January and February. We assess that the industrial production level in February was 4.8% higher than in the period before the outbreak of the pandemic (i.e. February 2020).

External demand supports Polish industry

Like in the preceding months, also in February the activity accelerated most in the categories with a significant share of export sales in the revenues. We assess that industrial production rose in February by 6.7% YoY (vs. +4.9% in January) in those categories where the share of exports in sales was over 50%. The said categories accounted for more than 50% of the total industrial production growth (their contribution towards the annual growth rate was 2.3 pp.). On the other hand, the production growth rate in construction-related sectors stood at 1.6% YoY in February vs. 0.0% in January, while in other branches (except for exports- and construction-related categories), production increased by 0.4% YoY comparing to -1.4% in January. The data shows that the recovery in global trade remains the main factor behind the industrial production growth in Poland. Leading economic indices published over the last couple of weeks, including in particular the PMI data indicative of a quick increase in the number of new export orders in manufacturing in the Eurozone and in global orders for investment goods indicate that the demand for Polish exports will remain high in the months to come.

Supply barriers slow the recovery in the industry down

Given the strong external demand, the much-lower-than-expected production growth rate in February comes as a surprise. In our opinion, a supply barrier caused by bottlenecks in global supply chains is the main reason behind it. GUS-published indices showing the extent to which the business activity is constrained by shortages in raw materials, materials and semi-finished products suggest that this problem is becoming more serious. In February, the percentage of companies pointing to the existence of those constraints in the “vehicles, trailers and semi-trailers production” category was the highest in the recorded history (since 2000). Shortages in terms of the availability of semi-conductors are particularly arduous for that category (production fell by 3.2% YoY comparing to -3.5% in January). “Furniture production” was another category that hit the record percentage of responses indicative of the existence of constraints mentioned above (increase by 3.2% YoY comparing to a drop by 1.8%). Comparing to December 2020, the percentage of similar responses also grew significantly in such categories as “textiles”, “leather and leather products”, “paper and paper products” and “metal products”. Across the manufacturing sector, the percentage of companies pointing to the existence of such a barrier stood at 13.9%, close to the all-time high (15.6%).

Downward risk for GDP growth in Q1 is growing

Taking into consideration business survey results for global manufacturing, which indicate that the abovementioned supply barrier resulting in shortages and delays in the delivery of raw materials and components is unlikely to be broken down quickly, we expect that the barrier will be constraining the activity growth in the Polish industry in the months to come. Consequently, we interpret today’s worse-than-expected production data for February as being clearly indicative of the downward risk for our GDP growth forecast for Q1 2021 (-1.0% YoY vs. -2.8% in Q4 2020). The third wave of the pandemic (see COVID-19 Dashboard of 15/03/2021) that has currently materialised and is driving workforce shortages up as well as the government’s yesterday’s decision to impose additional restrictions across the country from 20 March 2021 onwards strongly support our opinion. In our view, the decision will curb the seasonal increase in foods production in the period before Easter.

Today’s worse-than-expected industrial production data for February are negative for the PLN and the yields of Polish bonds.

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