Industrial production below expectations
In accordance with data published by Statistics Poland (GUS), the volume of sold production in enterprises employing more than 9 people went up by 2.5% YoY in March comparing to a 1.9% drop in February, printing below market consensus (3.6%) and markedly below our forecast (4.9%). Industrial production growth between February and March was largely driven up by the statistical effect of a favourable difference in the number of working days (in February 2025, there was one day less than in the previous year, while in March 2025, the number of working days was the same as in March 2024). Annual production growth in March was also driven strongly up by last year’s low base (seasonally-adjusted production in March 2024 had dropped by 4.9% MoM). In March 2025, seasonally-adjusted industrial production shrank by 0.7% MoM. Consequently, production in March was 3.7% lower than the all-time high recorded in October 2024. Favourable calendar effects and last year’s low base translated into an acceleration of annual industrial production growth in all main segments of the industry, i.e. export-oriented branches (4.2% YoY in March vs. -2.6% YoY in February), construction-related sectors (10.6% vs. 1.4%), and other categories (0.1% vs. -2.3%). The calendar effects and last year’s low base also contributed to a stronger production growth in the automotive industry (production in the “vehicles, trailers and semi-trailers” category increased by 9.1% in March vs. -4.8% in February).
Marked recovery in the industry will be seen in Q4 2025
Markedly poorer-than-expected production data and its breakdown suggest that the increase in households’ demand for goods is too slow to compensate a negative impact of weak external and investment demand on domestic industrial production. In our opinion, near-term growth prospects for export-oriented branches remain unfavourable, primarily due to a subdued activity in the manufacturing sector in the Eurozone, including Germany, which translates into a reduced demand for intermediate goods manufactured in Poland. We expect the activity in manufacturing in Germany and the Eurozone to rise markedly in Q4 2025, stimulated by the German fiscal package adopted last March (see MACROmap of 31/03/2025). Prospects for Polish manufacturing in the coming months will be under an additional, negative impact of the elevated uncertainty caused by escalated tensions in the global trade in the wake of D. Trump’s administration’s tariff policy. The release of April PMI results for the Eurozone and Germany scheduled for tomorrow will be important for the assessment of near-term prospects for Polish manufacturing. To a certain extent, it will take into consideration the impact of 10% tariff rates imposed by D. Trump in April on goods imported from the EU into the US, additional 10% “reciprocal” tariffs that have been suspended for 90 days, and 25% tariff rates for steel, aluminum and cars that had been adopted earlier.
Surprisingly strong slowdown of construction and assembly production
Construction and assembly production growth slowed from 0.0% YoY in February to -1.1% in March, printing below the market consensus (5.7%) and our forecast (7.5%). Construction and assembly production growth slowed between February and March despite the statistical effect of a favourable difference in the number of working days and last year’s low base mentioned above (in March 2024, seasonally-adjusted construction and assembly production had shrunk by 4.3% MoM). In March 2025, seasonally-adjusted construction output shrank by 3.7% MoM. Consequently, construction sector in March recorded the lowest activity level since October 2024.
Recovery in the construction sector slower than expected
Despite the favourable calendar effects and last year’s low base mentioned above, construction and assembly production growth accelerated substantially only in the “specialised construction activities” category (6.0% YoY in March vs. 3.0% in February). In the “construction of buildings” category, the growth rate increased only slightly and stayed substantially below the zero mark (-3.4% vs. -3.8%). In the “civil engineering works” category, which is of key importance for activity in the entire sector, production dropped by 4.9% YoY, comparing to a 1.7% growth in February. Such surprisingly strong MoM production drop and production structure in March indicate that activity in construction and investments is recovering more slowly than we anticipated. We have not changed our view, though, that the EU funds that Poland is receiving under the National Recovery Plan and Multi-Annual Financial Framework for 2021-2027 will be boosting the activity in the construction sector in the quarters to come. Our conclusion is underpinned by the increase in activity recorded in construction-related industry sectors in March, showing through a stronger performance in “other non-metallic mineral products” (10.2% YoY in March vs. 1.9% in February) and “metal products” (10.8% vs. 1.2%) categories. We still expect infrastructure investments to be a main construction and assembly production driver in the quarters to come, and the role of households’ housing investments and corporate investments will be limited (the outlook for corporate investments will be discussed in greater detail in the next MACROmap). Unfavourable supply factors such as decreasing labour supply or limited availability of certain materials will be slowing down the recovery in the construction sector, which will not become markedly visible until 2026, though (see MACROmap of 14/04/2025).
Employment in enterprises still follows a downward trend
In accordance with the GUS data published today, the employment growth rate in the enterprise sector remained stable between February and March, standing at -0.9% YoY, aligning with market consensus, but printing below our forecast (-0.8%). In monthly terms, the number of employed in March fell by 7.5k. The downward trend in employment observed in the enterprise sector over the last couple of quarters results from the impact of adverse supply (decreasing labour force resources, with baby boomers reaching the retirement age) and demand factors (weak external demand, low capacity utilisation in manufacturing and the related low investment demand on the part of the enterprises), which are the main reason behind the employment reduction in manufacturing, trade and services. We expect the downward trend for employment in the enterprise sector to start reversing in Q4 2025 at the earliest, mirroring the increase in external demand and public investments.
Slowest real wage fund growth since Q3 2023
Nominal wage growth in enterprises employing more than 9 people edged lower, from 7.9% YoY in February to 7.7% in March, printing below the market consensus (7.8%) and our forecast (7.9%). In our opinion, annual wage growth slowed slightly down as a result of last year’s low base and the easing wage pressure related primarily to the restructuring processes in the enterprise sector referred to above. In real terms, wage growth in enterprises slowed from 2.9% YoY in February to 2.7% in March (lowest since September 2023), and the real wage fund growth rate edged down to 1.8% YoY, from 2.0% in February. Consequently, real wage fund growth rate in the enterprise sector went down from 4.6% YoY in Q4 2024 to 2.3% in Q1 2025, reaching the lowest level since Q3 2023. The data underpins our forecast, in which consumption growth slowed down to 2.5% YoY in Q1 2025 vs. 3.5% in Q4 2024.
Downside risk to our economic growth forecast for 2025 growing stronger
Today’s data on industrial production and construction-and-assembly production for March combined with figures for employment and wages in the enterprise sector show that the wage pressures are gradually easing up, and that the domestic demand is recovering more slowly than expected. Consequently, we can see a substantial downward risk to our GDP growth forecast for Q1 2025 (3.1% YoY vs. 3.4% in Q4 2024). It will be possible to assess that risk more fully after the March retail sales data for Poland and the April PMI data for the Eurozone are published tomorrow. D. Trump’s administration’s tariff policy still carries a downside risk to the expected GDP trajectory for the quarters to come. Although Poland’s exposure to that risk is relatively low (see MACROmap of 25/11/2024), still we think that a potential, marked growth in tariffs rates imposed by the US and the EU, leading to a strong decline in trade between the two economies would be an argument in favour of adjusting our GDP growth forecast (3.5%) downwards.
We believe that the overall tone of today’s data from Polish economy is slightly negative for the PLN and the yields on Polish bonds. The data underpins our forecast in which the MPC will cut the interest rates by 50bp in the May’s meeting.
