Industrial production decline slowing down significantly

In accordance with the GUS data, industrial production sold in enterprises employing more than 9 people decreased by 1.4% YoY in June compared to a 2.8% drop in May, running above the market consensus (-1.6%) and below our forecast (-1.0%). Production decline was curbed by last year’s low base effects. Seasonally-adjusted industrial production increased by 0.4% MoM in June, which means that it rose for the first time since February 2023.

Industrial production driven up by a recovery in the automotive industry

In export-oriented sectors, production in June increased by 7.2% YoY vs. 3.8% in May, but it continued to fall, albeit less markedly than in May, in construction-related companies (-4.1% YoY vs. -8.5%) and other sectors (-5.1% YoY vs. -5.6%). It is worth noting that production growth in export-oriented sectors between May and June was driven up primarily by the growth in the “vehicles, trailers and semi-trailers” category (+19.7% YoY in June vs. +11.8% in May). It is consistent with the trends observed in the last couple of months: the recovery seen in the German automotive industry and good results of Polish exports of vehicles and vehicle parts as reported by the NBP (see MACROmap of 17/07/2023). However, the continuing production decline in non-export-oriented branches reflects a poor internal demand (consumption and investment) in Poland. We continue to believe that production growth in those sectors will accelerate significantly in H2 2023, driven by inflation that is expected to keep falling and drive real wages and consumption growth up, and by growth in housing investments and public investments co-financed with EU funds. In H2 2023, we forecast the production growth to keep accelerating also in export-oriented sectors, supported by the expected economic upturn in the Eurozone.

Recovery in the construction sector coming closer

In accordance with the data published by the GUS, construction and assembly production growth increased to 1.5% YoY in June comparing to -0.6% in May, running below the market consensus (+1.8%) and our forecast (+2.0%). Production growth was driven up by last year’s low base effect. Production growth between May and June was driven up by growth in the “construction of buildings” (-5.7% YoY in June vs. -12.2% in May) and “specialised construction activities” (3.8% vs. 0.9%) categories, while a slower growth in the “civil engineering works” category (5.9% vs. 9.1%) had the opposite impact. Seasonally-adjusted total construction and assembly production shrank by 0.5% MoM in June, and thus June was the fourth consecutive month to see it fall.

GUS business survey results published over the last couple of months indicate that the situation in the construction sector is gradually improving. Particularly noteworthy are the indicators for both current and expected orders, which continue to follow a clearly upward trend. We believe that the Bezpieczny Kredyt 2% (A Safe 2% Loan) programme will turn out to be an important factor driving the activity in the construction sector up in the coming months. Activity in the “civil engineering works” category will be supported by public finances sector entities’ efforts to make use of and settle the EU funds that were made available to them within EU’s previous multi-annual financial framework (2014-2020). It is consistent with our conclusion saying that the activity in the construction sector will begin to recover gradually in H2 2023.

Real wages rise for the first time since July 2022

In accordance with the GUS data published today, nominal wage growth in the sector of businesses employing more than 9 employees decreased to 11.9% YoY in June compared with 12.2% YoY in May, running below the market consensus (12.6%), but in line with our forecast. In real terms, after the adjustments made to take into consideration the changes in prices, wages in enterprises rose by 0.4% YoY in June comparing to a 0.7% drop in May, which represented their first growth since July 2022. The wage growth data breakdown for June shows that it was mainly the slower growth in wages in the mining sector that drove the total nominal wage growth down between May and June (-4.9% YoY in June vs. 20.2% in May). Wage growth in the manufacturing sector (12.2% YoY in June vs. 11.3% in May) had the opposite impact, which was somewhat surprising in the context of the restructuring processes launched in that sector (see below), but in our opinion the growth is only transitional. 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 ease in the enterprises will be the main factor slowing the nominal growth in wages down in the quarters to come.

Restructuring processes in the manufacturing sector still in progress

The employment growth in the enterprise sector went down to 0.2% YoY in June vs. 0.4% in May. This means it ran below the market consensus, which was consistent with our forecast. The number of employed individuals shrank by 4.9k between May and June. Workforce cuts were concentrated in the industrial manufacturing sector (a drop by 2.7k), which confirms that the restructuring processes observed in that sector over the last couple of months are continued.

Employment growth decline combined with a faster growth in real wages in the enterprise sector translated into 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 0.6% YoY in June (which represented the highest rate since July 2022) vs. -0.3% YoY in May. Consequently, real wage fund growth accelerated from -2.5% YoY in Q1 to -0.5% YoY in Q2. The wage fund data is thus consistent with our consumption growth forecast (-3.5% YoY in Q2 vs. -2.0% in Q1), the growth being curbed by last year’s high base effect. It will be possible to assess private consumption trends more precisely when we see the retail sales data for June, which is to be published tomorrow.

Soft landing scenario for Polish economy materialising

Today's labour market, industrial production and construction-and-assembly production data do not make us change our GDP growth forecast for Q2 (-0.2% YoY vs. -0.3% in Q1) and the entire 2023 (1.2% vs. 5.1% in 2022). Therefore, we maintain our “soft landing" scenario for the Polish economy, in which GDP growth in Poland in 2023 will remain positive despite a significant slowdown, which nonetheless will not be accompanied by a significant unemployment growth.

In our opinion, the labour market and industrial production data for June are neutral for the PLN and yields on Polish bonds.

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