PMI for Polish manufacturing increased from 47.8 pts in August to 48.6 pts in September, running markedly above the market expectations (47.3 pts) and our forecast (47.6 pts). Nonetheless, despite the increase, September was the 29th month running when the index remained below the 50-point mark separating growth from contraction. The index increase resulted from higher contributions of 3 out of its 5 components (new orders, current output and employment), with lower contributions of inventories and delivery times having the opposite effect.
Export orders decline at a weaker rate despite a downturn in the Eurozone
What is particularly noteworthy about the September data is that new orders went up to reach the highest level since November 2023, even though they remained below the 50-point mark. The decline in the number of new orders, including the new export orders, was slower, which is very surprising given the preliminary PMI results for manufacturing indicating a strong downturn in the Eurozone, including Germany, in September (see MACROmap of 30/09/2024). In our opinion, the recent divergences between Poland and the Eurozone as regards the economic situation are only transitional, and we find it highly likely that negative trends will grow stronger in Poland in the coming months.
Manufacturing production decline may go deeper again
The weaker fall in new orders was reflected in a weaker rate of decline in current output, which reached the highest value since last April, having been driven, among other things, by production backlogs dropping at a stronger rate. The still-weak demand was conducive to a further increase in the stocks of final goods (the strongest growth since June 2020), with companies simultaneously reducing their intermediate goods inventories, which underpins our hypothesis predicting that the rate of current output decline in the Polish manufacturing sector may grow stronger again. The index value for the production expected in a 12-month horizon is also indicative of such risk: even though it still remains above the 50-point mark, it dropped in September to the lowest level since August 2023.
More signals of “labour hoarding” in the Polish manufacturing sector
September saw a further drop in employment in the Polish manufacturing sector, though it was markedly weaker than in the preceding months, with the index reaching the highest value since May 2022. The enterprises taking part in the survey reported that retirements and temporary personnel reductions had been compensated to a great extent by new hirings. It is consistent with our conclusion saying that the limited scale of workforce cuts means that companies are trying to keep the key staff members allowing them to stay competitive and maintain their production potential, even though they need to lower costs through the reduction of excessive production capacities (see MACROmap of 08/07/2024).
No changes to our GDP growth slowdown scenario for H2 2024
Average PMI in Q3 stood at 47.9 pts vs. 45.3 pts in Q2. This, however, has no impact on our GDP growth slowdown scenario for H2 2024 (2.1% YoY in Q3 and 2.2% in Q4 vs. 3.2% in Q2). At the same time, we believe that today’s data is slightly positive for the PLN and the yields on Polish bonds.
