Polish industrial output (in companies with more than nine employees) rose by 0.5%y/y in August, below consensus of 1.2%y/y and our forecast at 1.4%y/y, compared to 5.2%y/y in July. The seasonally adjusted output figure was 1.9%y/y vs. 4.7%y/y in the previous month. Construction output fell by 5.0%y/y versus a decline of 8.8%y/y in July.
Polish industrial output slowed down significantly in August, below market expectations. The slowdown had been earlier suggested by the weak PMI index: the August reading was the second-lowest figure in 35 months, and signaled a fifth successive monthly deterioration in the business climate (as PMI remained below the 50 points threshold). One of the deepest industrial output declines was reported in export-oriented industries such as the automotive industry (by 8.3%y/y) and the furniture industry (down by 7.1%y/y).
Also the construction output figure, a separate category to industrial output, recorded another decline in year-on-year terms in August, for the third consecutive month. This weak construction output reading is another negative indicator for investments dynamics in Q3’12.
Taking into account the today’s weak industrial output print, together with a decline in inflation in August and the stagnating domestic labor market,
we now expect the MPC will cut interest rates by 25bp already at its upcoming meeting in October. We look for 50bp rate cuts until the end of the year, taking the reference rate down to 4.25%.