Q4 opened poorly
Decline in production growth rate sharper than expected
In accordance with GUS data, sold production of industry in enterprises employing more than 9 people declined by 1.3% YoY in October vs. a 3.2% increase in September, which was below our forecast (0.9%) and the market consensus (0.8%). Seasonally-adjusted industrial production rose by 1.3% MoM in October.
The main reason for the decline in production growth in October was a negative statistical effect related to a unfavourable difference in the number of working days (in October 2016 the number of working days was lower by 1 than in 2015, while in September 2016 it was the same as the year before). Nevertheless, the sharper-than-expected decline in annual production growth means that the deterioration of sentiment in manufacturing shown by a decrease in PMI in October was also reflected by hard data (see MACROpulse of 2/11/2016). A precise assessment of the reasons for the decline in activity in manufacturing and its sustainability will be possible after investigation of a detailed production structure to be published in GUS Statistical Bulletin towards the end of the month.
Decline in assembly and construction production deepened again
According to GUS, the construction and assembly production dropped by 20.1% YoY in October vs. a 15.3% decline in September. Seasonally-adjusted construction and assembly production dropped by 3.0% compared to September. Lower production growth occurred due to unfavourable calendar effect and to the low base effect from the year before in the category "civil engineering”, which had an opposite impact. Today's data do not alter our view that the construction and assembly production dynamics reached the bottom in August (see MACROmap of 10/10/2016). We expect that the annual dynamics of fixed capital expenditures 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 (see MACROmap of 10/10/2016). This view is supported by last week's reading of newly started construction projects (+7.6% YoY in October vs. -10.3% in September) and building permits (1.4% YoY vs -0.3%). However, today's data pose a risk that the expected by us acceleration in production may take place later than we currently assume.
Retail sales slightly weaker
In accordance with the GUS data released today, retail sales in enterprises employing more than 9 people rose in current prices by 3.7% YoY in October vs. a 4.8% increase in September, which was below our forecast (5.2%) and the market consensus (4.1%). The sales in constant prices rose by 4.6% YoY in October vs. a 6.3% increase in September. The slowdown in real retail sales growth was mainly due to lower dynamics of sales of food (3.7% YoY in October vs. 5.9% in September), fuels (0.9% vs. 6.0%) and in the category "motor vehicles, motorcycles, parts” (-2.5% YoY in September vs. 5.2%). In the context of good situation in the labour market and optimistic consumer sentiment, we believe that these declines are of a temporary nature (multiplied by unfavourable calendar effects) and do not signal a permanent trend towards deterioration in retail sales.
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 addition, a factor conducive to a decline in retail sales dynamics is the observed in recent quarters increase in households propensity to save (see MACROmap of 12/9/2016)
Q4 opened poorly
The data on industrial production, retail sales, and construction and assembly production for October suggest that the slowdown of economic growth recorded in Q3 (2.5% YoY vs. 3.1% in Q2) will be continued also in Q4 and its scale may deepen. Today's data also pose a downside risk to our scenario of NBP interest rates (an increase by 50 bp in H2 2017). The aggregate impact of today's data is slightly negative for PLN and yields on Polish bonds, we believe.