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Slump in Poland's March industrial output raises eyebrows

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By Karol Badohal

April 22 (Reuters) -Polish industrial output dropped more than expected in March, data released on Monday showed, raising concerns for the prospects for a solid rebound in emerging Europe's biggest economy in 2024.

Poland's Ministry of Finance expects the economy to rebound by 3% or more in 2024, supported by an economic recovery in core markets, including Germany and a rebound in domestic consumption on the back of strong wage growth.

Poland's industrial production PLIPY=ECI fell in March by 6.0% year-on-year, far beyond a 2% drop expected by analysts.

This second-worst reading since the outbreak of the COVID-19 pandemic in 2020 follows two months of output growth from the industry this year.

"While deterioration...and negative dynamics of industrial production and construction and assembly production were expected, the scale of the deviation and the scale of the surprise were very large," Bank Millennium chief economist Grzegorz Maliszewski said.

He noted that, while Monday's print was "worrying" and first quarter gross domestic product (GDP) growth would probably be slightly lower than the 2.3% forecast by Bank Millennium, other monthly data did not show similar deterioration, so it was too early to flag a trend reversal.

"I wouldn't radically change my expectations here, because there are many reasons to expect a continuation of economic recovery, as domestic demand will increase and the economic situation in Germany is also improving," Maliszewski said.

Monday's data did not impact the prospects for rate cuts, he said, as "inflation will remain far above the central bank's target... so the MPC should maintain its stable rates approach."

ING Bank Slaski analysts noted that March industrial output declines were visible in call sectors.

"We hope this is some sort of anomaly. Such weak data are inconsistent with signals of slow recovery in global industry -and even Germany - and the rebound of domestic demand pushed by the highest real wage dynamics since the late 1990s."

Corporate sector wages PLWAGE=ECI grew in March by an expected 12.0%, while employment eased 0.2% against analysts' consensus of a 0.1% drop other data released on Monday showed.

Reporting by Karol Badohal and Pawel Florkiewicz in Warsaw; Editing by Bernadette Baum


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