Polish industrial production rose by 4.9% year-on-year in July, after stagnating (0.0% YoY) in June. Weakness in demand hampered the growth of Polish manufacturing products, while dominating the positive calendar effect (July 2024 had two more working days than July 2023).
The largest increases in production were recorded in the manufacture of wood products (+21.0% YoY), furniture (+14.5% YoY), and paper products (13.9% YoY). In contrast, the deepest declines were reported in the manufacture of electrical equipment, including batteries for electric cars (-18.7% YoY) and motor vehicles, trailers, and semi-trailers (-9.1% YoY).
The low production levels were observed in export-oriented automotive-related industries, which ING links to the weakness of the German car market and the withdrawal of government subsidies for the purchase of electric cars in Germany since the beginning of this year. At the same time, there are reports of a fading economy in China and an economic slowdown in the US. Under such conditions, the recovery of Polish industry is progressing slowly.
In manufacturing, prices fell by 3.9% YoY, in mining by 4.0% YoY, in power generation by 12.8% YoY, and prices related to water supply, sewage, and waste collection rose by 3.8% YoY. Compared to June, producer price levels were unchanged, confirming the stabilization of the PPI index in recent months.
The decline in the production of capital goods (-1.7% YoY) is worrying the analysts, while the production of consumer durables increased solidly (+12.7% YoY). This confirms that GDP growth will be based on consumption, with visible weakness in exports and investment. ING 2024 economic growth forecast remains at 3%.
On the other hand, construction remains one of the weakest areas of the Polish economy and, as it accounts for about 50% of total investment, it is the main reason for weak investment activity this year.
Civil engineering construction, primarily related to public infrastructure investment, increased by 0.8% YoY (-0.9% YoY in June). Nonetheless, the start-up of projects co-financed by both the RRF and the new EU budget has been very slow and this has affected public investment this year. Improvements in this category are expected next year and in 2026.
The construction of buildings also continues to be very weak, falling 8.3% YoY in July (-7.9% YoY in June). While the reported number of construction starts has increased recently, this does not necessarily mean that the construction work has begun. Residential developers are facing an oversupply of expensive apartments – projects already started are being completed, and demand for real estate is weak. As a result, the number of completed apartments on offer is growing. High housing prices and high interest rates limit affordability.
The outlook for commercial construction (such as warehouse space, among others) is blurred due to market saturation and the ongoing downside inventory cycle.
Polish retail sales of goods rose by 4.4% YoY in July, the same pace as in June. However, seasonally adjusted data indicates a 2.7% MoM decline in sales. Sales of cars (+30.1% YoY) and fuels (+9.9% YoY) continue to grow strongly. Sales in the ‘other’ category (+18.0% YoY) and sales of pharmaceuticals and cosmetics (+11.2% YoY) also saw a boost.
At the same time, the scale of annual declines in textiles clothing, and footwear (-10.4% YoY) and furniture, consumer electronics, and household appliances (-3.4% YoY) is slowing. Continued declines in sales of consumer durables (excluding cars) suggest that households are continuing to try to save on less urgent expenditures. The decline in food purchases also continues (-2.7% YoY in July).
The industry is under pressure from weak foreign demand, while the weakness seen in exports and investment is a cause for concern, as today’s German and eurozone manufacturing PMIs do not suggest a recovery in external demand. Economic growth is still based on one pillar, and that’s consumption. With a persistently high core inflation, the question is: for how long?