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Polish industrial production data released on October 17 offered a rare bright spot in the recent gloom that has sat over Central Europe. The data could steer rate setters towards a lower rate cut at their November meeting, but also deepens confusion over the macro-economic picture in the region.

Polish industrial output increased 4.2% year-on-year in September, the statistics office GUS announced, outstripping the 2.6% forecast by PAP's consensus survey. On a monthly basis, production rose 16.5%, compared with an expectation of 14%.  Seasonally adjusted industrial output rose 1.9% annully and 1% over August.

The numbers are a welcome break in a cascade of poor results out of Central Europe. Concern was raised earlier this month when the Czech Republic and Hungary released weak industrial output data for August. Then, a sharp slide in activity in the Eurozone and Germany reported on October 14 appeared to confirm that the downturn was a reality.

Analysts were keen to flag up that the August data was due to holidays and would quickly bounce back. However, the German government promptly slashed its GDP growth forecasts for this year and next by 0.6 and 0.7 percentage points respectively.

That has raised worry that the Eurozone is headed back into recession; bad news for Central European economies heavily dependent on the country for export demand.

The Polish data appears to support the idea that the poor August data was a one-off and a rebound is on its way for the region. Healthy Purchasing Manager Index readings last month for the Czech Republic and Hungary offer hope for their September readings, especially given Poland has lagged on the forward looking PMI readings, even though the economy is far less dependent on Eurozone demand for exports than others in the Visegrad area.

However, that had analysts at Erste worried instead that the Polish uplift may prove a flash in the pan. The positive surprise for industrial production is "mostly due to statistical effects," they suggested. 

"We do not expect the upward trends to continue in the coming months, as PMI has been below 50 and the warning signals from the German economy prompt concerns on the growth outlook in Poland," they added. "As domestic demand is weakening and the number of new orders has not been growing for a while, in the coming months, the dynamics may again be lower."

Still, rate setters at the Polish central bank, who have been sowing confusion over their next move following a 50bp cut on October 8, may grab onto the improved activity to help forge a decision, especially with inflation having come in better than expected, albeit deflation continued at -0.2%. 

"As industrial output growth is another positive surprise this month (after the somewhat better than expected CPI figure), it may weigh on the MPC decision on how much the policy rate should be cut," Erste suggested. "The recent data make a 50bp cut less likely and we maintain our baseline of a 25bp cut. However, the risks of a bigger move continue, as the disappointing outlook presented in the inflation projection (downward revision of the growth forecast and subdued inflation expectation) may convince the most dovish members that another 50bp cut is actually needed."