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Disappointing data on retail sales

Production slowdown due to calendar effects

In accordance with GUS data, sold production of industry in enterprises employing more than 9 people rose by 3.2% YoY in August vs. a 7.5% increase in August, which was above our forecast (2.8%) and below the market consensus (3.5%). Seasonally-adjusted industrial production dropped by 0.2% MoM in September. In the whole Q3 industrial production in Poland rose by 2.3% vs. 5.0% in Q2.

The main reason for the decline in production growth in September was a negative statistical effect related to a unfavourable difference in the number of working days (in August 2016 the number of working days was higher by 2 than in 2015, while in September 2016 it was the same as the year before). In addition, conducive to the decline in industrial production growth was the abatement of the last year's low base effect related to a heat wave (see MACROpulse of 17/9/2016). Extreme weather conditions caused limitations in energy supply in Poland, resulting in reduced production capacity of Polish enterprises in August 2015. The abatement of this effect had a negative impact on industrial production dynamics in September 2016.

Construction is bottoming out

According to GUS, the construction and assembly production dropped by 15,3% YoY in September vs. a 18.8% decline in August. Seasonally-adjusted construction and assembly production rose by 3.3% compared to August. In the whole Q3 the construction and assembly production dropped by 18.1% vs. a 13.8% decline in Q2. Today's data support our view that the construction and assembly production dynamics reached the bottom in August (see MACROmap of 10/10/2016). Despite the negative calendar effects in September, the improvement sentiment observed in construction helped to stabilize the annual production growth in this sector. Nevertheless, we expect that the annual dynamics of capital expenditure allocated by the public sector as well as the construction and assembly production dynamics will continue to be negative until the end of 2016. In H1 2017, together with the continuing recovery in residential construction and increasing absorption of EU funds within the new perspective, the production will accelerate. A downside risk to our forecast is further possible delays in the announcement and execution of public tenders which occurred in the last few months and decline in the number of newly started construction projects recorded in September 2016 (-10.3% YoY vs. +6.8% in August) and building permits (-0.3% YoY vs. +23.3%).

Disappointing data on retail sales

In accordance with the GUS data released today, retail sales in enterprises employing more than 9 people rose in current prices by 4.8% YoY in September vs. a 5.6% increase in August, which was below our forecast (6.7%) and the market consensus (6.1%). The sales in constant prices rose by 6.3% YoY in September vs. a 7.8% increase in August. The slowdown in real retail sales growth was mainly due to lower dynamics in the categories "motor vehicles, motorcycles, parts” (5.2% YoY in September vs. 17.6% in August) and "others” (0.9% vs -8.4%). We believe that these declines are rather of a one-off nature and do not signal a permanent trend towards deterioration in retail sales. Similar conclusions can be drawn from the results of GUS business surveys.

Today's data on retail sales, like those from the last few months, reflect the consumer demand realized with the use of the proceeds from the Family 500+ scheme only to a limited extent. We believe that these funds are to a great extent used for services' consumption or purchases in shops employing less than 10 persons.

In the whole Q3, real retail sales rose by 6.2% YoY vs. a 5.4% increase in Q2, which supports our forecast, in which real private consumption dynamics will rise to 4.0% YoY in Q3 vs. 3.3% in Q2.

Slowdown of economic growth in Q3

The data on industrial production, retail sales, and construction and assembly production for Q3 support our forecast, in which economic growth will slow down to 2.8% YoY in Q3 from 3.1% in Q2. A downside risk to our forecast is the upward revised GDP dynamics in 2015 (3.9% YoY vs. 3.6% before the revision) released by GUS today.

The aggregate impact of today's data is slightly negative for PLN and yields on Polish bonds, we believe.