Polish factory activity shrank faster in August as output, new orders, employment and purchasing all declined faster than a month earlier, with domestic weakness driving a steeper drop in demand, a survey showed on Friday.

S&P Global's Polish manufacturing Purchasing Managers' Index (PMI) fell to 43.1 in August from 43.5 in July, remaining below the 50.0 line that separates growth from contraction for the 16th consecutive month. Analysts polled by Reuters had expected an improvement to 44.1.

Demand for Polish manufacturing goods continued to fall sharply in August, with new orders contracting for 18 months straight, according to the survey.

The rate of decline was the sharpest since October 2022, despite a slightly softer fall in exports as domestic market conditions worsened, the survey showed.

"New orders and output both dropped sharply during the month, leading firms to reduce purchasing, stocks and employment," said Trevor Balchin, Economics Director at S&P Global Market Intelligence.

"Supply chains and prices continued to come full circle. Lead times improved and input prices fell steeply in August, a complete turnaround since the summer of 2021 when supplier delays and input price inflation reached record levels," he noted.

The 12-month outlook worsened in August, according to the survey, with firms expecting a slowdown in the economy. While positive overall, output expectations were still at their softest in 2023 so far. (Reporting by Karol Badohal; Editing by Hugh Lawson)