In March, sold industrial production increased by 2.5% yoy, slightly below forecasts assuming an increase of 3.6% yoy. The acceleration compared to February (-2% yoy) is obviously due to a coincidence – a neutral calendar arrangement (an increase in the difference in working days from -1 to 0 yoy) and a low base from the previous year (around 5 percentage points!). Its scale is disappointing, but 1 p.p. miss is hardly a big deal for forecasters. In the case of industrial production in recent months, what is more important is not what is visible, but rather what is absent in the data. There is no breakthrough – Polish industry remains in long-term stagnation and the level of activity (as measured by production) is similar to that at the turn of 2021 and 2022.

Industrial production index (February 2020 = 100%)

Source: Statistics Poland, Macrobond, Pekao Research

What are the sources of stagnation in Polish industry? It is primarily due to the weakness of foreign demand, most importantly from Western Europe. This is evident in the structure of industrial production, where export-oriented industries are systematically outperformed by industries oriented towards the domestic market (whether for consumption or investment). To this, we could add issues of weak domestic demand for durable goods and industry-level problems (such as chemicals or automotive). While the impact of some of the aforementioned negative factors is already smaller, the weakness of foreign markets continues to cast a shadow over the prospects of Polish industry. In the coming months, increased demand volatility is expected due to the desire to rush production  before US tariffs and build appropriate stocks, but the overall impact of the trade war on Polish industry will be negative. It is worth remembering that the size of trade links between Poland – USA and Poland – US trading partners is not so large as to expect radically significant consequences for Polish industry. We are still talking about an impact of around 1% of total production.

While the industries related to investment and construction in particular (production of metals and non-metallic mineral products) performed well in March, construction itself was a huge disappointment. In March, the sector’s production fell by 1.1% y/y (compared to forecasts of an increase of over 5%). Neither the low base from the previous year (4-5 percentage points) nor the favorable weather conditions or extended working hours helped. After three months of declines, the level of production in construction returned to the average of the January – November period, signaling a lack of rebound in overall output. Looking at individual categories, it primarily indicates a continuation of trends from previous months: declining in buildings, stagnation in specialized works, and ongoing (albeit slow) growth in civil engineering. Overall, construction and assembly production increased by a disappointing 1% yoy in the first quarter of this year, which suggests that the revival in investment is occurring slower than anticipated. In addition, corporate investment and other expenditures on machinery and transport transport must grow at an unrealistically high rate for overall investment growth to exceed 5% yoy already in the first quarter.

Construction output by type

Source: StatOffice, Macrobond, Pekao Research

Going into 2025, we identified two main differences between our scenario for economic growth and the consensus: higher assumed growth in exports and investment. More intense and likely more consequential trade wars combined with disappointments in domestic macro data for February are significant risk factors for our GDP growth scenario of 4% this year. We do not change them, but we see an asymmetric distribution of risks for our forecast.