No signs of Polish industry recovery
Industrial production remains mired in months-long stagnation. The 1.5% year-on-year decline in August is essentially a continuation of fluctuations caused by an atypical calendar of working days. There are few arguments supporting a potential recovery in manufacturing, primarily due to the economic conditions in the Eurozone.
No signs of Polish industry recovery
Polish industrial production fell by 1.5% yoy in August, clearly below the consensus (0.0%) and in line with our forecast (-1.6%), after an increase of 4.9% yoy in July. We will repeat it ad nauseam – the considerable volatility of industrial production in recent months results from the unusual pattern of working days this year. The lower number of working days in August than a year ago contributed to today's weaker reading. In addition, sentiment and assessment of current production in manufacturing continue to stay at relatively low levels and do not provide many arguments for recovery. This also applies to industrial production itself, which remains stagnant. Domestic demand, despite a slight recovery, is not able to guarantee a sufficiently strong impulse for any rebound in industry.
Manufacturing output vs. sentiment
Source: Statistics Poland, Pekao Research
At the same time, foreign demand remains weak, but the main problem seems to be the collapse of the long-standing, upward exports trend. This results from the poor economic situation in the eurozone, and in particular the German economy, which has provided us with numerous negative signals in recent weeks. The condition of Polish exports industries is also not improved by the strong PLN, which weakens their competitiveness on the international stage.
Real Industrial Production Index (2021=100, SA, MA3)
Source: Statistics Poland, Pekao Research.
Moving on to the details of today's reading, sections of industry with the largest year-on-year declines were export-oriented. The production of electrical equipment fell by over 20%, while the production of metal products and machinery fell by 6% and 10%, respectively. The furniture production growth also decreased to almost -3% yoy. In addition, worth noting is the weakness of domestic mining - its production fell by almost 8% yoy, which is probably due to the negative difference in working days, to which mining is very susceptible. On the other hand, car production provided some positive signals, rebounding to -1.9% yoy from -9.1%, thus adding 0.6-0.7 percentage points to today's reading.
Industrial production in categories with the strongest August declines (% yoy)
Source: Statistics Poland, Pekao Research.
Today's data does not change our view on economic growth this year - we still expect GDP to grow by around 3%. Stagnation in industrial production was our baseline scenario due to the weak external environment with no arguments for a quick recovery. In turn, the pace of demand recovery will be sufficient only to keep manufacturing afloat, and only in the coming year will investment growth and a stronger rebound in consumption become a pretext for a revival in industry. The coming months will be "boring" from the analysts' perspective – the growth of industrial production will oscillate around 0% yoy and the chances for stronger deviations from this level are rather small.
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