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Increased activity in construction points to rebound in investments

Strong recovery in manufacturing continues

In accordance with GUS data, dynamics of sold production of industry in enterprises employing more than 9 people rose to 8.8% YoY in August vs. 6.2% in July, which was above the market consensus (6.0%) and our forecast (6.7%). Seasonally-adjusted industrial production increased by 3.2% MoM in August. Conducive to the acceleration in output growth in August was the abatement of the effect related to longer than last year holiday breaks in car factories (see MACROpu;se of 18/8/2017). In addition, industrial production in August was supported by continuing increase in new export orders in manufacturing (see MACROpulse of 1/9/2017), including those from construction companies. This view is confirmed by the structure of the August production pointing to a fast increase in output in segments with a considerable share of exports in sales ("motor vehicles, trailers and semitrailers” (13.5% YoY in August vs. 4.7% in July), "electrical equipment” (9.7% YoY vs. 5.3%)) and in segments connected with the construction sector ("metals” (12.2% YoY in August vs. 17.2% in July), "metal products” (14.6% YoY vs. 8.6%), and "rubber and plastic products” (11.3% YoY vs. 10.9%)).

Increased activity in construction points to rebound in investments

According to GUS data, the construction-assembly production growth rose to 23.5% YoY in August vs. 19.8% in July. A significant support for production dynamics was low last year's base (in August 2016 the annual output growth decreased despite a strong positive impact of the difference in the number of working days – see MACROpulse of 19/9/2016). Seasonally-adjusted construction production dropped month-on-month by 0.8%. Its annual seasonally-adjusted growth rate (22.6%) was the fastest since January 2012, namely since the construction boom related to EURO 2012.

The increase in the construction-assembly production dynamics resulted from higher output growth rate in the segment "specialized construction activities” (27.3% YoY vs. 9.1% in July). In the segment "construction of buildings” activity growth continued to stay at a relatively high level (12.8% vs. 13.1%). This points to a strengthening recovery in residential construction, signaled by business sentiment indicators in this sector. Especially noteworthy is a very fast increase of production in the category "civil engineering objects” (30.1% YoY in August vs. 33.7% in July), signaling marked rebound in public investments.

We expect that the construction-assembly production, supported by growing absorption of EU funds, higher public outlays on infrastructure and continuing recovery in residential construction, will remain within an upward trend in the coming months. Today's data on construction-assembly production strongly support our scenario of rebound in investments. We maintain our forecast, in which the growth rate of gross fixed capital formation will amount to 3.0% YoY vs. 0.8% in Q2.

Stabilization of retail sales growth

In accordance with the GUS data released today, nominal dynamics of retail sales in enterprises employing more than 9 people increased to 7.6% YoY in August vs. 7.1% in July, which was above our forecast (5.8%) and the market consensus (7.2%). Real retail sales growth rose to 6.9% YoY in August vs. 6.8% in July. The slight acceleration in sales in August was mostly due to their higher growth in the category "food, beverages, and tobacco products” (4.4% YoY vs. 2.2% in July) and "sales in non-specialized stores” (7.2% YoY vs. 6.6%). The stabilization of total sales growth in fixed prices supports our scenario that in the coming months the annual sales dynamics will gradually decrease, due to last year's high base effects related to the disbursement of funds under the Family 500+ scheme.

Data on industrial production, construction-assembly production, and retail sales in August signal an upside risk to our forecast of GDP growth rate in Q3 2017 (4.1% YoY vs. 3.9% YoY in Q2). The data released today are slightly positive for PLN and yields on Polish bonds, we believe.