Polish industry is experiencing something we haven't seen in 23 years

  • An improvement in the Polish PMI to 54.3 pts. (previously 53.4), but lower than market expectations (55.5).
  • Price estimate is the highest since 1998.
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Industry registers record inflation in March as a result of growing pressure on supply chains, according to the latest March PMI reading for the Polish industry. Production costs and finished goods prices are rising at the fastest rate since the survey began in 1998, or at least in 23 years.

In March, the PMI index, which depicts business conditions in the manufacturing sector, rose from February’s 53.4 to 54.3, signaling the most significant improvement in industry health since January 2018. In addition, the index recorded its fourth consecutive increase, marking the longest such sequence since 2013.

Recall that any score above 50 indicates expansion and below indicates regression, so a score above 54 can be considered positive.

March 2021 PMI. Record industrial inflation

“Polish manufacturers have clearly benefited from the pick-up in demand on European markets, particularly in Germany. In March, exports grew at the fastest pace in nearly seven and a half years, lifting overall order levels and accelerating output growth,” argues IHS Markit economist Trevor Balchin.

The problem is that we’re seeing something in the PMI data that should particularly worry us. It’s a huge upward pressure on prices. And those from business-to-business settlements could be about to reach the marginal consumer, which is all of us. The overall CPI inflation calculated by the Central Statistical Office in March has already risen above 3 percent, and many economists are convinced that it will not go below this level until the end of the year.

What does it look like in the industry? As we read in the PMI report, numerous shortages of raw materials on the market, higher transport costs, and zloty depreciation have pushed inflationary pressure in the Polish manufacturing sector to the highest level in the survey history. The rate of growth of production costs accelerated for the sixth consecutive month, reaching its highest level since the survey began in June 1998.

Supply problem to be solved

“However, the sector’s growth was constrained by strong pressures on supply chains. The Delivery Time Index (inverted sub-index) fell to a new record low and negatively impacted the reading of the main PMI index in March to the greatest extent in survey history. Unprecedented delivery delays have affected manufacturers’ spending and capacity utilization, with input cost inflation registering the highest level in survey history and backlogs increasing at the highest rate since January 2007,” Balchin explained.

In his view, the accumulation of unrealized orders also reflected continued labor shortages in the sector, recorded despite employment growth.

“The latest survey results suggest that supply-side problems need to be addressed for the industry’s recovery to really gain momentum,” the economist concludes.

Domestic analysts are also throwing in their weight. Those from Bank Pekao, for example, say that the recovery in the industry is not yet accompanied by a broader economic upturn, which “requires the pandemic to be quelled and epidemiological restrictions to be reduced.”  And they call for rapid vaccination.

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