Industrial production decline goes stronger due to calendar effects
In accordance with the GUS data, industrial production sold in enterprises employing more than 9 people decreased by 3.1% YoY in September compared to a 1.9% drop in August, running above the market consensus (-3.2%) and below our forecast (-3.0%). Industrial production growth was largely driven down by the statistical effect of an unfavourable difference in the number of working days between August and September (in August 2023, the number of working days was the same as in the previous year, while in September 2023 there was one day less than in September 2022). Seasonally-adjusted industrial production rose for the second month running in September, up by 0.9% MoM.
Production in export-oriented sectors drops for the first time since October 2021
Like in August, also in September, the main factor driving the YoY industrial production further down was the slowdown in activity in those sectors that sell most of their production abroad (-4.2% YoY in September vs. 1.4% in August). Consequently, the growth rate turned out to be negative for the first time since October 2021. The slowdown in activity in the export-oriented sectors was primarily attributable to such categories as “vehicles, trailers and semi-trailers” (1.0% YoY in September vs. 14.0% in August), “electrical equipment” (-15.0% vs. -7.3%), “machinery and equipment” (-1.1% vs. 9.9%) and “other transport equipment” (-1.9% vs. 15.2%). The continuing slowdown in the manufacturing sector’s activity in the Eurozone (and particularly in Germany; see MACROmap of 25/09/2023) resulting in a decreased demand for intermediate goods manufactured in Poland is the main factor driving production down in the export-oriented sectors over the last couple of months. Taking into account our economic growth forecast for the Eurozone and Germany, we expect the production in export-oriented sectors to accelerate only in Q1 2024.
Industrial production was also driven down by a faster production decline in construction-related sectors (-4.5% YoY vs. -3.4%). However, we believe that the activity in those sub-categories will accelerate in the months to come given the public investments co-financed with EU funds, which are coming towards an end, and given a gradual recovery in the housing construction sector supported by the Safe 2% Loan programme, which is conducive to an increased availability of mortgage loans (see MACROpulse of 21/09/2023).
A slower production decline in other sectors (-2.2% vs. -3.3%) was a stabilising factor for the activity in the industry. This means that our scenario, in which inflation drop driving real wages and consumption up drives the activity up in the sectors where production is sold mainly on the domestic market is materialising.
Further growth in real wages supported by falling inflation
In accordance with the GUS data published today, nominal wage growth in the sector of companies employing more than 9 employees fell from 11.9% YoY in August to 10.3% YoY in September, running below the market consensus (10.9%) and our forecast (10.8%). In real terms, after adjusting for price changes, wages in businesses rose by 2.0% YoY in September vs. a 1.7% growth in August. Therefore, the real growth rate turned out to be the strongest since February 2022.
Last year’s high base effects were the main factor driving nominal YoY wage growth down between August and September (see MACROpulse of 20/10/2022). 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 pressures ease in the enterprises will be the main factor slowing the nominal growth in wages down in the quarters to come.
Surprising employment growth in the manufacturing sector
Employment growth in the enterprise sector did not change between August and September, and stood at 0.0%, in line with the market consensus that was consistent with our forecast. The number of employed fell by 6.0k in September, driven down primarily by a relatively strong employment decline in the trade sector (down by 4.3k MoM). A significant rise in terms of the number of employed (+2.3k) was seen in the manufacturing sector, which is somewhat surprising, especially given the results of the business sentiment surveys. It is worth noting that the PMI component for employment in the Polish manufacturing in September reached its lowest value since October 2022 (see MACROmap of 02/10/2023). Therefore, we believe that the September’s employment growth in that sector is unlikely to be a sign of a reversal of the downward trend or a slowdown in the restructuring processes observed in that sector over the past couple of months.
Employment growth stabilisation combined with real wage growth 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 2.0% YoY in September vs. 1.7% YoY in August. Consequently, the average real wage fund growth rate went up from -0.5% YoY in Q2 to 1.1% in Q3, which supports our consumption growth forecast (+0.2% YoY in Q3 vs. -2.7% in Q2). Private consumption growth in Q3 will be additionally supported by the easing of last year’s high base effects connected with the outbreak of war in Ukraine (see MACROpulse of 16/08/2023). It will be possible to assess private consumption trends more precisely when we see the retail sales data for September, which is to be published tomorrow.
We uphold our “soft landing” scenario
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 marked slowdown (with the average annual growth standing at 0.5% YoY), which nonetheless will not be accompanied by a significant unemployment growth.
In our opinion, the labour market and industrial production data for September are neutral for the PLN and yields on Polish bonds.
