Industrial production rose by 1.5% yoy in February, in line with consensus but slightly below our forecasts (2.5% yoy). A quick look inside indicates that the data is actually somewhat better from our perspective – manufacturing output grew only 0.5 p.p. slower than our assumptions, and the rest of the surprise stems from the behaviour of energy production, which was highly uncertain due to weather factors. These same factors, by halting construction works, significantly limited production in sectors supplying the construction industry (other non-metallic mineral products, i.e. mainly cement, production of metals).

Industrial production (February 2020 = 100%)

Source: Statistics Poland, Macrobond, Pekao Research

Although we hoped for a slightly better result, industrial production maintained the pattern of heightened volatility and high sensitivity to small changes in working time, which has been visible for several months. In February, manufacturing production increased by 3.4% mom, which, with the number of working days unchanged, makes this month one of the best Februarys in history. This followed the worst January in 14 years, which in turn was a reaction to the best December in 18 years and the worst November in 17 years... These fluctuations are slowly subsiding, but output remains volatile.

The share of Middle Eastern countries in EU imports, selected products

Source: Eurostat, Pekao Research

In the near term, a rebound is expected in sectors supplying domestic investments. At the same time, the outbreak of war in the Persian Gulf constitutes a risk factor due to delays and shortages in the supply of certain components and raw materials. This primarily concerns some petrochemical products, liquid fuels, technical gases, and aluminium (see the chart above). So far, however, the shock is not comparable to the events of 2022. We consider the slowdown of the European economy and Polish exports to Western European countries to be a greater problem.

Construction and assembly production fell by 13.7% yoy in February, which is close to forecasts but still an improvement on January. A slight rebound in construction was determined by the thaw at the end of the month (and relatively better weather conditions in the south of the country), but the sector generally remained under the influence of weather (low temperatures and snow cover). In fact, the beginning of the year was the worst period for the sector in this respect since 2010. The weakness of construction should not be surprising in this situation, as weather is the most important determinant of activity levels in construction during winter months.

Average daily temperature in the Jan-Feb period (Celsius)

Source: GUS, ogimet, Pekao Research

March, as every reader can easily check by looking out the window, will already be much better for construction. Nevertheless, delays from the previous two months cannot be made up so quickly, and the first quarter of the year will bring a significant decline in production (probably around 5% quarter-on-quarter). This means that the investment recovery has encountered an unexpected obstacle. If 2010 is a good precedent, then two months are enough for production levels to return to those from December of the previous year. If, however, winter had not been so unfavourable, production would have been higher. Therefore, it must be assumed that the total value of construction investments realised this year will be slightly lower than in a world where the cold spell did not occur. A purely mechanical postponement of some investments (those not affected by KPO fund settlement deadlines) lowers the investment forecast for this year from 9.7 to 7% year-on-year. In the first quarter itself, we believe investments will fall by 0.5% year-on-year.

Change in construction output in 2010 and 2026 (cumulative change compared to December of the previous year, based on s.a. data)

Source: GUS, Pekao Research