An unexpected rebound in the Polish industry 

In recent months, Polish industry has accustomed us to disappointing results. However, the bad streak is over – in October, sold industrial production increased by 4.7% yoy, significantly above forecasts (1-1.5% yoy). We have a feeling of an "inverse déjà vu" – just as the September retail sales were too bad to be true, the October production looks too good to be true. In the following part of the text, we discuss this reading and put forward some hypotheses as to why it looks so good.

It is really difficult to find fault with the industry's results from the previous month – the surprise was solid, the growth impressive, and its structure balanced as well. The October spike cannot be attributed to any specific sector – neither the production of energy (+19% m/m, very close to our assumptions) nor any particular branch of manufacturing. Indeed, the acceleration in the industry was very evenly distributed: only two small sections (the pharmaceutical and printing industries) failed to accelerate, and the median acceleration in manufacturing output amounted to 5 pp., almost exactly the same as the average (5.3 pp.). The large contribution of the food, automotive, and electrical equipment manufacturing (together accounting for 2.2 percentage points of acceleration) is more a matter of their size than particularly good behavior in the previous month.

Sold industrial production – sector breakdown for October (y/y)

Source: Macrobond, GUS

The October spike can be viewed from another perspective – production excluding seasonal and calendar factors surged by 4.6% mom. No wonder – production on a monthly basis (without seasonal adjustment) grew at a record scale (+10%), even surpassing months with a much better calendar arrangement (more working days and lower base from September).

Sold industrial production in October (% m/m)

Source: Macrobond, GUS

In looking for factors responsible for such good industrial results, we must focus on those that have helped the entire sector, did so on an unprecedented scale, and within one month. An improvement in foreign demand is likely an element of this equation – we believe that Europe has been getting too pessimistic press recently – but nothing indicated that October this year was particularly good in this regard. It is possible that production in October was additionally boosted by catching up after the previous month. Readers may remember that in our commentary on the last disastrous Polish retail sales print, we speculated that warm September favored the consumption of services rather than goods. Perhaps the extended vacations had a greater impact on production than we initially thought – this would explain why the industry behaved as if it had an extra working day available.

Index of sold industrial production (February 2020 = 100%)

Source: Macrobond, GUS

October was so strong that the increase in production recorded in it was worth more than the cumulative decline in output between March 2022 and April 2023. In other words, one good month ended 2.5 years of industrial stagnation and pushed the seasonally adjusted volume index of industrial production to a new historical maximum. However, if we are correct about the unusual role of the calendar, production will not remain at the new peak for long. Nevertheless, the third quarter started very well for the industry, and we dare say that in the revisions of GDP forecasts after the third quarter, it was worth being cautious. GDP growth in the fourth quarter may easily grow at a faster rate than in the third quarter.