The year begins with a downturn in the Polish manufacturing sector

PMI for Polish manufacturing sector decreased from 56.1 pts in December to 54.5 pts in January, running markedly below the market consensus (56.4 pts) and slightly below our forecast (54.9 pts). The index was driven down by lower contributions of 3 out of its 5 components (new orders, current output, and inventories), with an opposite impact coming from higher contributions of employment and delivery times components.

Supply barriers curb the activity in the Polish manufacturing sector

As regards the data structure, it is worth noting that delivery times got longer again, and at the same time the prices went up faster both for intermediate goods used for production and final goods. The structure shows that the supply barriers are growing, and they keep on curbing the activity in the Polish manufacturing sector. At the same time, it comes as a kind of surprise given the last week’s results of business sentiment survey for the Eurozone, which were indicative of supply barrier reduction (see MACROmap of 31/01/2022).

Increasing cost pressure with negative impact on sentiments in manufacturing sector

As regards the data structure, it is also worth noting that the index value for the production expected in a 12-month horizon dropped in January 2022 to the lowest level since November 2020. In accordance with the report, a decline in expectations concerning the future output arises primarily from the growing cost pressure faced by the companies responding to the survey. With the operating costs growing, the companies are facing the necessity to raise the prices of their final products, which may have a negative impact on their

ability to compete in the market.

Companies are hiring more employees

January 2022 saw the strongest employment growth since July 2021. In accordance with the report, this was connected with increasing production backlogs. In our opinion, another reason that explains the growth to some extent is that the companies need to temporarily hire additional employees to ensure production continuity with the number of new COVID-19 infections continuing to grow strongly in Poland and bearing in mind an increasing risk of quarantine for some of the staff members (see the COVID Dashboard).

GDP growth to slow down significantly in Q1 2022

Taking into consideration the data from the Eurozone, China and the US, which are indicative of a gradual supply barriers reduction, we believe that the reduction will also start to show through an increased activity in the Polish manufacturing sector in the months to come. This, however, has no impact on our forecast, in which Poland’s GDP will slow down significantly in Q1 2022 and stand at 4.5% YoY (vs. 7.2% we assessed for Q4 2021; see MACROpulse of 31/01/2022).

Today’s worse-than-expected results of Poland’s manufacturing business survey are, in our opinion, slightly negative for the PLN and yields on Polish bonds.

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