Polish PMI indicates first worsening in business conditions since mid-2020

Polish PMI indicates first worsening in business conditions since mid-2020
By Wojciech Kosc in Warsaw June 2, 2022

Poland's Purchasing Managers' Index (PMI) dropped 3.9 points to 48.5 in May, the economic intelligence company S&P Global said on June 1.

Ongoing supply-side delays, high inflation and market instability owing to the war in Ukraine drove the decline in May, S&P Global said. An increase in inventories offset the negative trends to an extent. Manufacturers also expect the difficulties to last, as the business outlook dropped to its lowest in over a year-and-a-half, the index’s compiler also said.

Analysts say that the May PMI reading is a prelude to a more clearly pronounced slowdown in industrial activity.

“Over-proportional expansion of inventories masked symptoms of a weakening in fundamental demand. If this trend is halted, we may face a wave of rapid deterioration of the economic situation and manufacturing activity, strengthened by the simultaneous weakening of domestic and foreign demand,” bank PKO BP said in a comment. 

“Operating conditions deteriorated amid noticeable drops in both production and new orders. Confidence slipped to its lowest level since October 2020, whilst employment growth remained modest,” S&P Global said.

Shortages of inputs remained a factor underpinning the persistently severe inflation in May, owing to high prices of raw materials, energy, and fuel. A substantial proportion of these higher input prices were passed on to clients. 

Still, rates of inflation for both inputs and at the factory gate were noticeably softer when compared to April. 

Average lead times remained severe and firms signalled a modest rise in backlogs of work as a result. Employment rose for a sixth successive month, although at a modest rate. 

Elevated inflation and supply-side delays were cited as a factor for the stockpiling of goods that were available to purchase on goods markets. Inventories of purchases subsequently rose for a fourteenth successive month. Purchasing activity also rose, although as production and new orders fell, the rate of growth was marginal and the lowest in the current sequence of expansion.

Trends visible in the PMI survey will be reflected in the May readings based on real data from the sector. The PPI is expected to continue growing fast after surging 23.3% y/y in April, an increase from an increase of 21.9% y/y the preceding month.

The PPI has been well into double-digit territory since September, fuelling headline inflation. Polish CPI grew 13.9% y/y in May, adding as much as 1.5pp to April’s reading.

Meanwhile, Poland’s industrial production expanded 13% y/y in April, easing from an expansion of 17.3% y/y the preceding month.

Data

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