Industrial production recorded a higher result in November than the market consensus, which may indicate a slow deceleration of the economy, which is likely to record a positive result in the last quarter of this year. Some economists estimate the GDP growth rate at around 2.5% y/y in the fourth quarter of this year.
As reported today by the Central Statistical Office (GUS), sold production of industrial companies rose by 4.6% y/y in November 2022. On a monthly basis, an increase of 2.9% was recorded. After eliminating the impact of seasonal factors, industrial output sold in November was 4.4% higher than in the same month last year and 2.7% higher than in October this year. Among the main industrial groupings, November saw an annual increase in the production of capital goods, up 13.8%, non-durable consumer goods, up 7.5%, and supply goods, up 2.6%. In contrast, the production of energy-related goods declined – by 5.4% and consumer durables – by 3.2%.
The market consensus predicted a 2.2% year-on-year increase in industrial production.
Economists point to the good November results achieved by the export industry, mainly oriented to the production of capital goods.
According to analysts, the weakening economy is part of the “wait and see” phase the Monetary Policy Council is now in. The current production structure, according to economists, shows a less inflationary character.
Below are the most interesting comments from analysts:
“Tomorrow’s retail sales data will provide a better assessment of the health of the service sector in 4Q22. We currently forecast GDP growth in the current quarter to be around 2.5% y/y,” said ING Bank Slaski chief economist Rafal Benecki, economist Adam Antoniak
After two months of the fourth quarter, it is already apparent that industrial dynamics in this period may be about half that of the third quarter, so a solid slowdown in GDP growth should be expected at the end of the year. The deteriorating economy will undoubtedly be the main argument for the MPC to keep interest rates at current levels, according to Bank Pocztowy chief economist Monika Kurtek
The data are in line with our baseline scenario for the MPC. Weaker economic growth, the onset of disinflation, and a less inflationary growth structure suggest that the pause in the monetary tightening cycle will transition “smoothly” into the end of the cycle, with a chance of small rate cuts in 2h23, according to PKO Bank of Poland economists
Below are the most interesting statements from economists in extenso:
Industrial production rose by 4.6% y/y in November (consensus: 2.2%; ING: 0.7%), following an increase of 6.6% y/y in October ( after revision). Excluding seasonal factors, growth was as high as 2.7%m/m. Production results in the power generation section turned out to be better than our concerns. At the same time, the decline in annual manufacturing production growth is gradual, consistent with the recent improvement in German and Eurozone economic indicators (Ifo, PMI, Sentix). European manufacturing is supported by better availability of components for production after improvements in the functioning of supply chains in recent months, and less concern about possible gas shortages due to favorable weather conditions at the start of the heating season on the old continent cause. As a result, domestic industries with a large share of production for export – (1) machinery and equipment, (2) electrical equipment, (3) automobile manufacturing – performed solidly. This does not change the fact that there are worse quarters ahead for the industrial sector. Further disinflation is evident in producer prices. PPI inflation slowed in November to 20.8% y/y from 23.1% y/y in October. On a m/m basis, the PPI index declined for the first time since August 2020. Of some interest is the increase in prices in the energy supply section on a m/m basis, after two months of marked declines. Energy prices are now about 60% higher than a year ago. In manufacturing, the deepest year-on-year price decline was in the production of coke and refined petroleum products (-7.6% y/y). Declines also in metals and electronics production. The end of the year looks relatively favorable for domestic manufacturing, which is entering the slowdown phase quite gently, accompanied by a decline in inflationary pressures, although PPI inflation remains high. Domestic manufacturing once again confirms a nice resilience to external shocks. Tomorrow’s retail sales data will provide a better assessment of the health of the service sector in 4Q22. Currently, we forecast GDP growth in the current quarter to be around 2.5% y/y, according to ING Bank Slaski chief economist Rafal Benecki, economist Adam Antoniak.
Industrial production grew by 4.3% y/y in November, much faster than our forecast (1.3% y/y) and the median forecast (2.2% y/y) and slightly slower than in October (6.8% y/y). The source of the positive surprise was primarily the increase in high electricity production. Although its annual growth rate was negative (-8.5% y/y), this is largely due to the high base effect – last November’s energy production was 45% higher than a year ago for a reason that is difficult to explain (this was not confirmed by other measures of energy production). The unusually high readings in this category lasted from October 2021 to July 2022. The anomaly seems to have reappeared a month ago. Energy production is up 23% from October. Manufacturing itself, on the other hand, is decelerating (from 9.2% y/y in October to 6.1% in November). This also follows a high base from last year, when companies began to rebuild inventories intensively, after unblocking supply chains. This deceleration therefore does not signal an imminent industrial collapse, but rather a slow return to a multi-year trend. Producer inflation (PPI), on the other hand, fell strongly in November to 20.8% y/y from 23.1% in the previous month continuing a strong disinflationary trend. This was helped here by a very high reference base, but also by declines in commodity and fuel prices. The decline in core PPI inflation, that is, excluding energy and fuel prices, is also good news. It is worth noting that compared to the previous month, producer prices fell by 0.5% m/m, the first decline since August 2022. On the other hand, food prices continued their upward trend. PPI inflation as a leading indicator strengthens us in our forecast of clear disinflationary pressure in CPI inflation next year as well, according to Bank Pekao expert Karol Pogorzelski
Industrial production has slowed somewhat. However, the scale of the slowdown is smaller than forecast. We are facing further weakening of results in the coming months due to the recession in the eurozone. PPI producer inflation fell. Industrial production rose 4.6% in November, noticeably above market expectations (2.2%). The results signal a limited slowdown in the Polish economy. Good results were seen in the machinery, electrical and automotive industries. The strongest drop in activity was in metals and chemicals production. Industrial production increased in 19 of the 34 industrial divisions – 11 less than just six months ago. The next few months will see further deceleration in industry. We expect industrial production in the first quarter to be lower than in 2022. – Among other things, this will be the result of the weakening of the domestic economy by interest rate hikes. Exporters are also vulnerable to poor performance. Already, industrial companies surveyed by the CSO indicate a significant drop in new orders. The European Central Bank forecasts that Eurozone GDP will grow by just 0.5% next year. Such results mean that the outlook for Polish manufacturing will remain weaker in the coming quarters. PPI inflation slowed in November from 22.9 to 20.8%. This is a result of, among other things, a drop in energy prices from historic highs. Since August, prices for natural gas traded in Europe on the Dutch TTF exchange have fallen from €200 to €136/MWh, and Brent crude oil from $110 to $79 per barrel. Wholesale energy prices on the POLPX exchange are also stabilizing, with the price of the basic BASE contract for next year falling from 1790 in August to 1019 PLN/MWh in November. Despite this, energy prices remain noticeably higher than a year ago. The lower PPI will also translate into a reduction in consumer inflation starting next March, according to Analyst – macroeconomics team Marcin Klucznik of the Polish Economic Institute (PIE).
Source: ING Bank Slaski, PKO Bank Polski, Bank Pocztowy, PIE, ISBnews
