Poland's Industrial Output Declines in June, Reflecting Weak Manufacturing Activity

Poland: Industrial output decreases YoY in June

Industrial output (June): -2.2% YoY

We forecast that industrial production remained in the red in June, falling for the fifth consecutive month in annual terms. Last month’s PMI report points to a further sharp deterioration in new orders, particularly from Germany, which suggests that weakness in Poland’s manufacturing activity is likely to continue in the near term. On a positive note, capital goods manufacturing has remained solid recently, giving reason to expect further growth in fixed investment.

PPI (June): 1.3% YoY

Rapid disinflation in producer prices likely continued in June and annual growth is trending towards negative figures. In monthly terms, PPI has been falling since February this year and prices in manufacturing have been declining in MoM terms since November last year. Given the high reference base, this has led to a rapid drop in annual wholesale inflation. June's PMI report showed that the downward pressure on manufacturing prices remains strong. In the second half of 2023, we expect producer prices to be lower than in the second half of 2022.

Retail sales (June): -5.5% YoY

We forecast that retail sales of goods fell again in June as the broad-based decline in consumption demand continued. Higher prices and a deterioration in the real purchasing power of households trimmed spending. According to our estimates, 2Q23 was the third consecutive quarter of annual decline in private consumption in Poland. Some improvement should be visible towards the end of this year as CPI inflation moderates and real wage growth returns.

Wages (June): 12.1% YoY

Nominal wage growth stabilised at low double-digit levels and swings along additional payments in mining and energy sectors. We project wage pressure to continue over the medium term despite some deterioration in economic activity. Demographic trends are curbing the supply of labour and the gap has mostly been filled with immigrants. On top of that, the government has pursued sharp increases in minimum wages recently. In 2024, the minimum wage is proposed to go up by more than 20%.

Employment (June): 0.4% YoY

The level of employment in the enterprise sector has been moderating slightly in recent months and annual growth remains low. A cooling in manufacturing has reduced the demand for workers in some sectors. At the same time, unemployment remains at very low levels and the supply of labour is limited.