In accordance with the GUS data, industrial production sold in enterprises employing more than 9 people dropped by 6.0% YoY in March compared to an increase by 3.3% YoY in February, running markedly below the market consensus (-2.4%) and our forecast (-3.0%). The statistical effect of an unfavourable difference in the number of working days (in March 2024 the number of working days was 2 days lower than in March 2023, while in February 2024 the number of working days was 1 day higher than a year ago) was an important factor influencing the reduction in the industrial production growth rate between February and March. Seasonally-adjusted industrial production shrank by 5.5% MoM in March.
The decline in seasonally-adjusted industrial production in March was surprisingly strong. Only three times in the data history at our disposal, has there been a stronger reduction in industrial production on a MoM basis, the two periods mentioned being during the first lockdown in spring 2020. We do not have the full knowledge to identify the reasons for the sharp decline in industrial activity. It is possible that the strong decline in seasonally adjusted production reported by the GUS was due to the difficulty of clearing the data of calendar effects amid large differences in the number of working days and the shift of the Easter holiday. Thus, the March data may be revised in the following months.
Due to the impact of unfavourable calendar effects, the decrease in seasonally unadjusted production growth rate was broad-based and was recorded in the three main industry segments, i.e. export-oriented sectors (-10.0% in March vs. 1.3% in February), construction-related industries (-9.1% vs. 0.9%) and other categories (-3.3% vs. 4.7%). The rate of decline in the latter segment is lower than in the other categories due to strong domestic demand (mainly supported by private consumption, see below).
Decline in construction activity
The growth rate of construction and assembly production in Poland decreased to -13.3% YoY in March vs. -4.9% in February, running clearly below market consensus (-4.3%) and our forecast (-8.5%). The decline in construction and assembly production growth between February and March can be accounted for to a large extent by statistical effects in the form of an unfavourable difference in the number working days mentioned above. However, seasonally-adjusted construction and assembly production shrank by 4.3% MoM in March.
At first glance, the data signal a strong decline in construction activity, but here too there may have been difficulties in clearing the data of seasonal effects. Production growth between February and March was driven down by slower growth in the ‘civil engineering works’ (-17.8% YoY in March vs. -7.8% in February) and ‘construction of buildings’ (-16.1% vs. -0.3% YoY) categories. The acceleration in the 'specialised construction works' category (-3.2% YoY vs. -7,2%) had the opposite impact. This structure of production growth confirms that demand in the construction industry is currently strongly constrained by the reduced absorption of EU funds (see MACROmap of 18/03/2024). Data on the number of dwellings under construction (812.2k in March, compared to 806.4k in February) signals that the boom in mortgage lending observed in recent months has so far translated into a limited increase in construction activity. In the following months, we expect the gradual recovery in construction to continue, supported also by an increase in residential construction activity and the implementation of NRP projects.
Employment growth declines again
According to the GUS data released today, employment growth in the sector of enterprises was unchanged in March compared to February at -0.2%, in line with the consensus and below our forecast (0.0%). The number of employed individuals shrank by 9.7k between February and March. The categories 'administration and support activities' (-2.8k people) and 'manufacturing' (-2.7k people) were mainly responsible for the decrease in total employment. The decline in employment in manufacturing is indicative of ongoing restructuring processes. In our opinion, business survey data for industrial manufacturing combined with labour market data indicating the low number of people declared by businesses to be laid off, and the historically high percentage 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. In other words, we believe that the scenario in which employment in the enterprises sector were to plummet in 2024 is unlikely.
Double-digit wage growth continues
Nominal wage growth in the sector of enterprises employing more than 9 employees slowed down to 12.0% YoY in March vs. 12.9% in February, running slightly above the market consensus and our forecast (11.9%). The several percent increase in nominal wages was broad-based and was recorded in most of the categories reported by the GUS. In real terms, after the adjustments made to take into consideration the changes in prices, wages in businesses rose by 9.8% YoY in March. It is worth noting that this was only slightly slower than the record growth recorded in February (9.9%, the highest since at least 1999). The stabilization in employment growth and the slower increase in real wages in the enterprise sector translated into a slight decrease in real wage fund growth (the product of employment and average wage adjusted for changes in prices) in this sector to 9.5% YoY in March vs. 9.4% in February. Average real wage fund growth increased to 9.2% YoY from 4.5% in Q4 2023, supporting our private consumption recovery scenario (see MACROmap 11/03/2024). It will be possible to assess private consumption trends more precisely when we see the retail sales data for March, which is to be published tomorrow.
Downside risks to economic growth rate in Q1
Today's sharply lower-than-expected industrial production and construction and assembly production data pose a downside risk to our forecast that Poland's GDP growth rate will increase to 1.5% YoY in Q1 from 1.0% in Q4. At the same time, we believe that the overall tone of the data from the Polish economy published today is slightly negative for the PLN exchange rate and Polish bond yields.
