Poland’s industrial production expanded by 10.3% in July y/y, but heralds a slowdown in the economy’s expansion, the country’s Central Statistical Office (GUS) said on August 20.

Poland and the rest of region have been enjoying strong growth for more than a year, but recent data suggest that the CEE boom has passed its peak.

“Despite solid industrial activity in July, GDP growth is unlikely to exceed 5% y/y in the third quarter this year. We expect a moderate slowdown to 4.6% y/y,” ING said in a note.

While growth in Poland remains robust, the industrial production in July was 5.4% lower than in June, the statistical office reported, and it is expected to continue to slow as the year wears on as the economy runs up against its structural constraints.

The slowdown is not uniform. Output in the construction and assembly sector shot up by 18.7% y/y in July, according to GUS. Builders in Poland completed 6.3% more homes in the first six months of 2018 than in the same period in 2017, as demand for accommodation remains high thanks to rising wages and economic growth, according to RZB. Polish President Andrzej Duda this month signed into law a bill aiming to speed up the construction of new homes as a result of the growing housing shortage.

ING identified three main contributors to July’s growth:

• Solid external demand. Export branches were growth leaders in July with a superior role of machinery producers (25%YoY NSA), transportation vehicle manufacturers (e.g. railways equipment – 20.6%YoY) and electrical equipment companies (17.5%YoY).
• A solid activity of sectors closely linked to constructions (i.e. metal production – 18.7%YoY), supported by strong public investments growth.
• Relatively strong contributions (1.3pp) delivered by the utilities sectors (energy production, water supply). The increase is supported by weather conditions, likely with a transitory impact. The contribution should lower from September.

"Output data confirm expected slowdown in the third quarter,” said Dorota Strauch, an analyst with Raiffeisen Bank (RZB) in Warsaw. “After disappointing data from labour market on [August 17], the industrial and construction output results published yesterday also surprised to the downside. The production dynamics were at 10.3% y/y and 18.7% y/y respectively. While the former grew by 7.8% y/y after adjusting for seasonal factors, the result was boosted by one-offs as high temperatures in July increased energy and water supply.”

“Weaker construction output should not be viewed as a signal of deterioration in investment activity but rather as a stabilization after abnormally high dynamics from the first quarter above 30% y/y. As a result, in line with the lower PMI for July, the data support our forecast of a mild GDP slowdown in the third quarter to around 4.7-4.8% y/y. The data also does not imply any changes to the neutral stance of the Polish MPC,” Strauch added.