Poland’s manufacturing PMI rose to 48.5 pts in February from 47.5 pts in January, running above market expectations (48.0 pts) and our forecast (48.2 pts). Thus, the index has remained below the 50-point mark that separates growth from contraction for ten months in a row. The rise in the index is accounted for by higher contributions from 4 out of its 5 components (new orders, stocks of purchases, employment, and output), partially offset by a lower contribution from delivery times.
What is particularly worth noting about the data is that manufacturing output and new orders, including new export orders, are shrinking more slowly. However, businesses surveyed in February still pointed out problems with weak demand, which continues to be affected by the war in Ukraine and persistently high inflation. Lower demand also translated into delivery times having shortened for the first time since January 2020. Shorter delivery times were also a result of an easing of supply chain pressures (see MACROmap of 27/02/2023).
Amidst shrinking output and new orders, businesses continued restructuring processes to adjust the scale of their operations to current market circumstances (see MACROpulse of 01/02/2023). This was reflected in further shrinking of input inventories and a fall in employment. Nevertheless, businesses surveyed still experience noticeable capacity surpluses, which means that, given weaker demand, there is space for further restructuring.
February saw a marked reduction in the growth rate of both input and output prices. This is a consequence of declining cost pressures as well as weaker demand. Thus, the unexpected acceleration of price growth in the aforementioned categories recorded in January was temporary (see MACROpulse of 01/02/2023). This is consistent with our assessment that the following months will bring a further weakening of price pressures in Polish manufacturing, which will support the gradual reduction in inflation in Poland that we forecast.
February saw a strong increase in the index for expected production at a 12-month horizon, which rose to its highest level since April 2022 and has remained above the 50-point threshold for four months This signals that the restructuring processes launched in many businesses, aimed at increasing productivity and reducing energy consumption, as well as the mild nature of the slowdown in economic growth in Poland (see MACROpulse of 28/02/2023) and the improvement in the economic situation in Poland's main trading partners recorded in February (see MACROmap of 27/02/2023), have led some businesses to formulate more optimistic assessments of their future activity.
The business survey results for the Polish manufacturing support our scenario of a 'soft landing' of the Polish economy. According to this scenario, Poland’s GDP growth will slow markedly in 2023 (to 1.2% vs. 4.9% in 2022), but it will remain positive and the slowdown in economic growth will not be accompanied by a significant increase in unemployment (see MACROpulse of 28/02/2023).
In our opinion, today’s data is neutral for the PLN and the yields on Polish bonds.