The Polish manufacturing index (PMI) rose to 44.5 pts in October from 43.9 pts in September, exceeding both market expectations (44.3 pts) and our projection (44.0 pts). As a result, in October the index reached its highest level in four months. However, for the 18th consecutive month, it remains below the 50-point threshold that separates growth from contraction.
The primary driver behind the index's rise was the slowing pace of decline in the total inflow of new orders. The sub-index for total orders increased more significantly than the component for export orders, suggesting that the source of improved demand was an uptick in domestic orders, spurred by a recovery in construction and consumer demand.
Amid a backdrop of diminishing new orders, the processing of backlogged contracts proved insufficient to stabilize manufacturing activity. October saw an intensified reduction in output, marking its sharpest decrease since November 2022.
The diminishing activity in the manufacturing sector was also reflected in the continued steep decline in prices for both intermediate and finished goods. This trend is consistent with our forecast of a gradual easing of inflationary pressures in Poland in the upcoming months. Lacklustre demand led to an decrease in businesses' purchasing activity and contributed to the first build-up of stocks of final goods in six months. According to the PMI report, the rise in stocks was primarily due to an accumulation of unsold goods.
Nevertheless, today's economic survey results offer some positive signs. The rate of job losses (associated with ongoing restructuring within the manufacturing sector) slowed down in October. Meanwhile, the index for expected production over a 12-month horizon dipped slightly from September yet stayed above the average of the past year. It is noteworthy that the PMI for October was above Q3's average (44.5 pts vs. 43.5 pts), supporting our forecast of an accelerated economic growth in Poland for Q4 (projected at 1.9% YoY vs. 0.5% in Q3).
In our opinion, today's data is neutral for the PLN exchange rate and yields on Polish bonds.
