Industrial output fell by 2% yoy, which was due to a larger-than-expected decline in manufacturing (by 2.3% yoy), a collapse in mining production (by 12.9% yoy), and an acceleration in the energy sector (to 8.1% yoy). The latter is the easiest to explain – unlike January, February was quite a cold month and demand for energy increased significantly. What contributed to such a result in processing? In last month's commentary, we pointed out a relatively new pattern in detailed production data. Sections related to investment (such as the production of metals, non-metallic mineral products, and other transport equipment) and domestic demand (e.g., the food industry) were relatively better off, while industries with a high export share (machinery and equipment, cars and parts) were worse off. In February, little changed in this regard, although the growth rates are generally lower. The thesis that under the cover of overall industry stagnation, signs of investment revival are still present.

Industrial production, volume index (s.a., Feb'20 = 100%)

Source: Statistics Poland, Macrobond, Pekao Research

Since we are talking about stagnation, seasonally adjusted data clearly show that no breakthrough has occurred in Polish industry in recent months. In February alone, production fell by 0.2% mom (seasonally adjusted), placing it at the level of June 2022. Essentially, industrial production has not changed for three years, so the current volatility of its growth rates is entirely due to calendar effects (which were slightly negative in both January and February) and mere randomness (the infamous September 2024 must ex post be recorded in this column). February data therefore do not change our view on the prospects for industrial production growth this year – investment revival and the rebound in foreign demand will end the sector’s multi-year stagnation.

Construction disappointed in February - production did not change yoy and fell by 2.3% mom (s.a.). Why the surprise? It is possible that weather conditions negatively impacted activity on construction sites. February was relatively cold and snowy (much colder than the previous three ones, including the ridiculously warm February 2024). The historical relationship between the average temperature in February and the increase in production in that month indicates that each 1°C is worth almost 3 percentage points in the dynamics of construction production. Nevertheless, both the actual level of production and the one implied by consensus forecasts comfortably fit within this relationship. At the same time, companies in sentiment surveys did not indicate weather conditions as a barrier to activity at all. In short – we have a small puzzle that can only be resolved by March data. For now, however, we do not see a reason to change our optimistic view on significant investment acceleration this year.

Construction output and weather conditions

Source: Statistics Poland, Macrobond, Pekao Research