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Weak zloty and mild weather key factors in industrial output surge


The November figures for industrial output came in well above expectations. Despite a higher reference base and reports by companies of a substantial drop in new orders, production accelerated sharply during the month, growing at the highest rate since February 2011.

In our view, the continued strength of Poland’s industrial sector is in large part due to the significant depreciation of the zloty observed in recent months. The weaker zloty substantially enhanced the export competitiveness of Polish products in a context of flagging global demand, while at the same time helping crowd out imports from the still highly absorptive domestic market (as a result, a bigger part of domestic demand is being satisfied by local production). Another factor that contributed to the resilience of industrial activity in November were unusually benign weather conditions, which allowed for the continuation of outdoor projects. Although the impact of weather conditions on the industrial sector is only indirect, the sustained construction activity made possible by warm weather drove higher demand for construction materials and steel or metal products. The acceleration of output in November may have been additionally helped by statistical factors related to national holidays: whereas in 2010 the Independence Day (11 November) fell on a Thursday, which led some people to take the following Friday off to enjoy a long weekend, in 2011 it fell on a Friday, offering no such possibilities.

In December the weather remained mild and the zloty weak, and both factors are set to have supported industrial production last month. However, it is difficult to assess the extent to which the zloty’s exchange rate will be able to continue to cushion the impact on industrial output of sluggish demand in the months ahead. In fact, the latest PMI index for Poland’s industrial sector was the lowest in more than two years, suggesting a further slowing of orders and a drop in activity in the sector. Taking into account a higher base of comparison and a smaller number of working days compared with the same period of 2010, we estimate that in December industrial output growth slowed to below 5% y-o-y, and that in 2011 as a whole industrial output grew by 6.5%. For 2012 we expect a further deterioration in industrial activity, with a projected growth in industrial output of 3.5%.

Paweł Sionko
Construction Market Analyst, PMR

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