Local Analysts React To July Activity Data

In their initial reactions to Poland's July activity data, local sell-side desks pointed to continued stagnation of employment, a return to negative real wage growth, deeper-than-expected contraction in industrial output and the beginning of decline in producer prices. All in all, today's round of data should support dovish NBP bets.

• ING point to a larger-than-expected contraction in industrial output, flagging "Y/Y declines in all four main categories of goods, including a two-digit contraction in mining." Coupled with larger-than-forecast PPI deflation, this amounts to a "surprisingly weak start to 3Q2023 in industry." They suggest that the slowdown in wage growth was driven by base effects, due to generous bonus payments in the mining sector a year ago.
• mBank write that today's round of domestic data was "consistently weak". They note that the disappointing outturn for industrial output was not weighed on by energy or mining. Real wage growth returned below zero, albeit mBank do not expect this state of affairs to last. They draw attention to the fact that producer prices are now deflating, which they expect to deepen into the year-end.
• Pekao note that real wages are back to negative territory, but should return to growth in August. The downside surprise, in their view, stemmed from an overestimation of bonus payments in the mining sector. They observe that industrial output has returned to its multi-year trend, ending its post-pandemic outperformance. They expect GDP growth to be +0.3% Y/Y in 3Q2023 and +0.4% Y/Y in the full year. They reaffirm their call for 3-4 NBP rate cuts this year.
  
• The Polish Economic Institute write that PPI is in deflation due to a cooling in global industry, adding that as a result, we should see slower growth in the prices of goods and a further slowdown in core CPI inflation in Poland. They expect the purchasing power of consumers to keep rising in the coming months, despite decrease in the pace of wage growth in July. They note that the proportion of firms planning salary increases remains elevated.