In accordance with data published by the GUS, the volume of industrial production sold by enterprises employing more than 9 people shrank by 1.7% YoY in May vs. a 7.8% growth in April (downward revision from 7.9%), printing markedly below the market expectations (+1.5%) and our forecast (+1.9%). Industrial production growth between April and May was largely driven down by the statistical effect of an unfavourable difference in the number of working days (in April 2024, there were two days more than in the previous year, while in May 2024, there was one day less than in May 2023). Seasonally-adjusted industrial production shrank by 2.1% MoM in May. Over the last couple of months, there have been significant fluctuations in seasonally-adjusted production levels, which could be connected with difficulties related to the adjustment of data for calendar effects, which arose due to huge differences in the number of working days and to the date of Easter falling earlier than in the previous year. That makes it difficult to assess activity trends in the Polish industry precisely. Nonetheless, it is worth noting that seasonally-adjusted industrial production in May 2024 was 0.3% lower than in December 2023, which indicates that it has undergone stagnation in H1 2024.
Production declines in many categories
Given the impact of unfavourable calendar effects, the slowdown of annual industrial production growth was broad-based, and was seen in the three main segments of the industry, i.e. export-oriented branches (-6.6% in May vs. 5.0% in April), construction-related sectors (-5.4% vs. 8.4%) and other categories (1.8% vs. 9.3%). What is particularly noteworthy is that production in export-oriented branches slowed more strongly than in other segments of the industry. In our opinion, short-term production prospects for export-oriented branches are still unfavourable due to a lower activity in the manufacturing sector in the Eurozone, which has led to a lower demand for intermediate goods manufactured in Poland. This conclusion is consistent with the results of May’s PMI survey for the Polish industrial manufacturing sector. The surveyed companies were pointing to a weaker demand on key European markets (Germany and France; see MACROmap of 03/06/2024). Consequently, the production dynamics of intermediate goods shrank from 6.1% YoY in April to -4.9% in May. More details on the prospects for export-oriented branches will come to light on Friday when June’s preliminary PMI results for the Eurozone are released.
Decline in employment stronger than expected
In accordance with the GUS data published today, employment figures for the enterprise sector went down from -0.4% in April to -0.5% in May, printing below market expectations and our forecast (-0.4%). The number of employed individuals shrank by 11.7k between April and May. In our opinion, employment figures were driven down by the decline in the “industrial manufacturing sector” category, just as it had been the case in the previous months, which was connected with the continuing restructuring processes in that sector. In our opinion, business survey data for industrial manufacturing combined with labour market data showing that the number of people declared by the companies to be laid off is low, and also with a historically high level of vacancies show that the said restructuring processes will be gradual in the months to come. The restructuring processes will involve staff turnover, which means that the employees will be accepting job offers in the sectors in which the demand for workforce is still high. Bearing in mind that consumption will be the main driver of the economic recovery that we expect to take place in the quarters to come, the demand for the labour force will increase primarily in those sectors that are mostly consumer-oriented, i.e. in the services and consumption goods production sectors. In other words, we are still of the opinion that the scenario in which employment in the enterprise sector were to plummet in 2024 is unlikely.
Two-digit growth in nominal wages continues
Nominal wage growth in the sector of businesses employing more than 9 employees increased from 11.3% YoY in April to 11.4% YoY in May, printing slightly below the market consensus that was consistent with our forecast (11.6%). In real terms, after the adjustments made to take into consideration the changes in prices, salaries in companies rose by 8.7% YoY in May comparing to an 8.7% growth in April. Wage growth stabilisation combined with a stronger decline in employment in the enterprise sector resulted in a slight decrease 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 8.2% YoY in May vs. 8.3% YoY in April and 9.2% in Q1. This, however, has no impact on our consumption recovery scenario (see MACROmap of 10/06/2024). This is because wages across the entire economy grow markedly stronger than in the enterprise sector (in Q1, wage growth across the entire economy stood at 14.4% YoY comparing to 12.6% in the enterprise sector alone). It will be possible to assess private consumption trends more precisely when we see the retail sales data for May, which is to be published on Monday.
Slight optimism
Today’s data on industrial production and average wages and employment in the enterprise sector have do not change our forecast in which economic growth will follow an upward trend in the coming quarters, boosted primarily by consumption. We are not changing our average annual GDP growth forecast for 2024 (2.8%), either. At the same time, we believe that the overall tone of today’s data from Polish economy is slightly negative for the PLN and the yield on Polish bonds.
