In accordance with the GUS data, the volume of industrial production sold in enterprises employing more than 9 people increased by 15.2% YoY in November compared to 7.8% in October, running markedly above market expectations (8.4%) and our forecast (9.0%). The main reason behind the acceleration of the industrial production growth between October and November was the statistical effect of a favourable difference in the number of business days (in October 2020, there was one business day more than this year, while in November 2021 the number of those days was the same as the year before). Seasonally-adjusted industrial production grew by 6.5% MoM in November (the highest monthly growth since June 2020 when the strong production growth was connected with the lifting of pandemic-related restrictions and the restoration of global supply chains). We assess that the industrial production level in November was 17.7% higher than in the period before the outbreak of the pandemic (i.e. February 2020).
Manufacturing boosts production
A significant acceleration of production growth in the manufacturing sector (from 5.5% YoY in October to 13.0% in November) was the reason behind the better-than-expected data concerning production. We assess that the production growth acceleration in the manufacturing sector boosted the annual production growth rate by 6.5 pp. The acceleration of annualised production growth in November was broad in scope and concerned a number of categories. Particularly noteworthy was a relatively quick growth in the production of intermediate goods in November (17.0% YoY), which significantly exceeded the rates of growth for the production of durable consumer goods (9.7%), capital goods (9.5%) and non-durable consumer goods (8.3%). It suggests that in November, like in the previous months, the enterprises operating in the manufacturing sector were increasing their inventories in response to the surging number of new cases in the fourth wave of the pandemic and a growing risk of disruptions in the supply of materials and components caused by the new restrictions in the countries (predominantly Asian), in which the reinstatement of pandemic restrictions is driving their domestic industrial production and exports down.
The industrial production growth was also accelerated by an increase in the annual production growth in the “electricity, gas, steam and air conditioning supply” category from 40.6% YoY in October to 47.7% in November, which increased the total production growth rate by approx. 0.8 pp. between October and November. To some extent, the continuing, strong production growth in this category is caused by a quick recovery in the manufacturing sector. However, we still think the growth could have been connected with the GUS’s difficulties in assessing the deflator (i.e. the change in prices) in the context of the quickly growing prices of energy, just as it was the case in October. We believe that this ratio (8.4% YoY in November vs. 8.3% in October) might have been assessed as lower than it should have been, which would boost the real production dynamics in the energy sector in November.
Quick production growth in exporting sectors is back
Sector-wise, particularly noteworthy is the situation in production categories with a substantial share of export sales in the revenues. We estimate that production in export-oriented branches rose in November by 8.3% YoY comparing to a 2.4% drop in October. Production accelerated significantly from 13.7% YoY in October to 19.3% in November in the sectors focused on the domestic market, reaching the highest level since April 2021. In our opinion, the acceleration of production in those sectors is connected with the stocks of inventories being built up in the manufacturing sector (see above).
The strong production growth acceleration in the export-oriented sectors is indicative of a gradual reduction of the barrier growth that was caused by bottlenecks in the production process, which is suggested, among others, by the PMI data, which indicates that production backlogs are growing at a slower pace, and by the decreasing number of enterprises reporting the lengthening of delivery times. However, we expect the new wave of the pandemic, which is currently seen in many countries, and the reintroduction of pandemic-related restrictions in Asian countries to hinder the eradication of bottlenecks in the production process in a short term horizon. Nonetheless, we maintain our scenario, in which the supply constraints will be receding in the medium term perspective, stimulating further recovery in activity in the manufacturing sector.
Upside risk for GDP growth, inflation and interest rates
Today's industrial production data represents a significant upside risk to our forecast, according to which Poland's GDP will grow by 5.5% YoY in Q4 vs. a 5.3% growth in Q3. Combined with the news on gas and electricity price rises for households effective from January 2022, which will be higher than we assumed, the news posing a significant upside risk to our inflation forecast for 2022, today’s data on production are indicative of an increasing probability that the interest rates in 2022 may go up higher than we expected (see MACROmap of 6/12/2021).
Data on industrial production in November are slightly positive for the PLN and the yields on Polish bonds.