Downturn in Polish manufacturing continues

PMI for Polish manufacturing decreased from 47.4 pts in December to 47.1 in January, running markedly below market consensus (48.2 pts) and our forecast (48.0 pts). This means that the index has remained below the 50-point mark separating growth from contraction for 21 consecutive months. The index was driven down by 2 out of its 5 components (new orders and current output), while an opposite impact came from higher contributions of components for employment, inventories and delivery times.

Decline in new orders gets stronger

What is most notable from the data is a stronger decline in the total number of new orders, incl. the export orders. In both categories, the components reached their lowest levels since October 2023, which indicates that the number of orders has dropped quickly. The data shows that the activity in the Polish manufacturing sector is curbed by a slowdown in the global trade and in economic activity seen in the EU countries including Germany, the Czech Republic, Austria and Hungary as reported by the surveyed enterprises, and by a slower growth in retail sales in Poland. The declining number of orders translated into a stronger drop in current output. Like in the previous months, also in January the enterprises were compensating for the declining demand by reducing their production backlogs, which took place at the fastest rate since October 2023.

Disruptions in supply chains without substantial impact on output prices so far

In the wake of the weakening demand the stocks of finished goods diminished slightly and January 2024 saw such a decline for the first time since September 2023. The size of raw material inventories continued to shrink, with substantial acceleration having been seen when it comes to the decline in purchases of intermediate goods used in the production process. The decline in intermediate goods purchases gives rise to a particular concern as such declines usually show that the recovery in the manufacturing sector is becoming less likely. In our opinion, the decline in purchases of intermediate goods in January was caused, to some extent, by supply chain disruptions that appeared in the wake of stability having been undermined in the Red Sea region, which caused the overseas transport from Asia to Europe to become markedly longer. Consequently, January saw the biggest increase in the suppliers’ delivery times since August 2022. Nonetheless, despite the pro-inflationary impact of longer delivery times resulting from the situation in the Middle East, the input price component in January indicated that those prices were still slightly falling.

The outlook’s getting brighter

January once again saw substantial differences between the surveyed companies as regards their opinions on their current standing and future prospects. PMI for the production expected in a 12-month horizon rose between December and January, reaching the highest level since February 2022, which is indicative of a substantial YoY production growth. The growing expectations with regard to the future output are consistent with an increasingly slower decline in employment in the manufacturing sector. Although the employment component in January was indicative of a slightly lower demand for work, it still reached the highest level since May 2022.

The PMI in January is showing that the activity in the Polish manufacturing sector will accelerate later than expected, and not earlier than in Q2. This conclusion, together with much-worse-than-expected implied data on economic growth and consumption for Q4 (see MACROpulse of 31/02/2024), will be reflected in our revised macroeconomic scenario that will be presented in the next MACROmap.

In our opinion, today’s PMI data is slightly negative for the PLN and yields on bonds.

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