Industrial production data markedly below market expectations
In accordance with the GUS data, the volume of sold production of industry in enterprises employing more than 9 people fell by 6.4% YoY in April vs. a 3.0% drop in March, running markedly below the market consensus (-3.4%) and our forecast (-3.0%). A statistical effect of an unfavourable difference in the number of working days (in March 2023, the number of working days was the same as in the previous year, while in April 2023 there was one day less) had a downward impact on industrial production growth between March and April. However, last year’s low base effect had the opposite impact (in April 2022, industrial production had fallen by 11.8% MoM, see MACROpulse of 20/05/2022). Seasonally-adjusted industrial production shrank by 1.6% MoM in April.
Export-oriented sectors as activity driver in Polish industry
April saw a decrease in the annual production growth in the three main categories of companies. In export-oriented sectors, production in April increased by 0.8% YoY vs. 12.8% in March, but it fell in construction-related companies (-10.3% YoY vs. -9.3%) and other sectors (-9.1% YoY vs. -8.8%). The production growth structure shows that the only positive contribution towards total industrial production growth in April came from the export-oriented sectors, whose activities amidst a weak demand environment were strongly supported by reduction in production backlogs. At the same time, “vehicles, trailers and semi-trailers” and “other transport equipment” are still among the sub-categories that saw the highest year-on-year production growth over the last three months. It is consistent with the recovery seen in the German automotive industry and good results of Polish exports of vehicles and vehicle parts reported by the NBP (see MACROmap of 22/05/2023). Thus, export-oriented branches are generally relatively resilient to the downturn seen by Poland’s main trade partners. However, the continuing production decline in other branches reflects a poor internal consumption and investments demand in Poland. We continue to believe that production growth in sectors that are not focused on exports can be expected to accelerate significantly only in H2 2023, when disinflation leads to an increase in real wage and consumption growth, and when public investments co-financed with EU funds accelerate significantly. In H2 2023, we expect the production growth to accelerate also in export-oriented sectors, supported by the expected economic upturn in the Eurozone. In this context, particularly noteworthy is the publication of preliminary PMI indexes for the Eurozone planned for tomorrow.
Growing wages in the mining industry boost wage growth in the entire enterprise sector
According to the GUS data published today, nominal wage growth in the sector of businesses employing over 9 people slowed down to 12.1% YoY in April vs. 12.6% in March, running in line with market consensus and above our forecast (11.6%). In real terms, after the adjustments made to take into consideration the changes in prices, wages in companies fell by 2.2% YoY in April comparing to a 3.0% drop in March. The wage growth structure data for April shows that it was the slower growth in wages in the manufacturing sector that drove the total wage growth down between March and April (9.8% YoY in April vs. 12.7% in March). However, a strong wage growth in the mining sector (48.6% YoY in April vs. 1.8% in March) had the opposite impact. The data suggests that wage pressure in the Polish industry is still distributed unevenly, and that it is particularly strong in State Treasury-controlled sectors. We expect the nominal annual wage growth to follow a mild downward trend in the quarters to come, and we also believe the same will apply to average wages across the entire economy. A significant inflation drop, which we expect to take place, combined with the related wage pressure decline in the enterprises will be the main factor slowing the nominal growth in wages down in the quarters to come (see MACROmap of 08/05/2023).
Less intense restructuring processes support the employment growth
Employment growth in the enterprise sector went down to 0.4% YoY in April compared to 0.5% in March, which is markedly above the market consensus that was consistent with our forecast (0.2%). The number of employed increased by 7.5k between March and April. As regards the main categories, the strongest year-on-year drop in employment was seen in manufacturing (-1.0% YoY in April vs. -0.8% in March) and construction (-1.1% vs. -1.7%) sectors, which recently had been the scene of intense restructuring processes. We continue to believe that we are past the peak of restructuring processes, and the scale of workforce cuts will be decreasing in the coming months (see MACROmap of 08/05/2023).
A slower growth in employment combined with a slower decline in real wages in the enterprise sector resulted in an increase in the real wage fund growth rate in the enterprise sector, the rate being the product of employment and average wage adjusted for changes in prices, to -1.8% YoY in April vs. -2.5% YoY in March and -2.5% in Q1. The wage fund data is consistent with our consumption growth forecast (-1.0% YoY in Q2 vs. -3.5% in Q1). It will be possible to assess private consumption trends more precisely when we see the retail sales data for April, which is to be published tomorrow.
The "soft landing” scenario for the Polish economy is materialising
Today's labour market and industrial production data carry a downside risk to our Q2 GDP growth forecast (0.2% YoY vs. -0.2% in Q1). The upside risk to our GDP growth forecast for the entire 2023 is therefore lower (see MACROmap of 16/05/2023). Today’s data is consistent with our “soft landing" scenario for the Polish economy, in which GDP growth in Poland in 2023 will remain positive despite a significant slowdown (1.2% YoY vs. 5.1% in 2022), which nonetheless will not be accompanied by a significant unemployment growth.
In our opinion, the labour market and industrial production data for April are slightly negative for the PLN and yields on Polish bonds.
