Is this the end of the slowdown?
Industrial production consistent with short-term trend
In accordance with GUS data, sold production of industry in enterprises employing more than 9 people rose by 2.3% YoY in December vs. a 3.3% increase in November, which was below our forecast (3.0%) and above the market consensus (1.8%). Seasonally-adjusted industrial production rose by 1.6% MoM in December. In the whole Q4, industrial production in Poland rose by 1.4% YoY vs. 2.3% in Q3.
We believe that last year the increase in production in some branches shifted from October to November, compared to the seasonal pattern from previous years. Consequently, a significant decline in the annual production growth was recorded in October and its stronger-than-expected increase was observed in November (see MACROpulse of 21/11/2016). After the abatement of this effect, the production growth rate returned in December to a level consistent with short-term trend. Sharp increase in PMI sub-index concerning new orders in December and results of GUS business surveys signal good prospects for industrial production in subsequent months.
Recovery in construction continues
According to GUS, the construction and assembly production dropped by 8.0% YoY in December vs. a 12.8% decline in November. Seasonally-adjusted construction and assembly production rose by 2.5% compared to November. The construction and assembly production increased despite the negative statistical effects and thus this increase is yet another signal of sustainable improvement in this branch. In the whole Q4, the construction and assembly production dropped to 13.2% YoY vs. a 18.1% decline in Q3. We expect that, together with the recovery in residential construction and increasing absorption of EU funds within the new programming period, the assembly production dynamics will gradually increase in the coming months but will probably stay negative until the turn of Q1 and Q2 2017.
End of deflation of retail prices
In accordance with the GUS data released today, retail sales in enterprises employing more than 9 people rose in current prices by 6.4% YoY in December vs. a 6.6% increase in November, which was below our forecast (6.9%) and above the market consensus (6.1%). The sales in constant prices rose by 6.1% YoY in December vs. 7.4% in November. Lower growth rate of retail sales occurred mainly due to lower dynamics of sales in the category "other” (down from -0.6% YoY in November to -8.4% in December). Especially noteworthy is the fact that positive dynamics of prices of products included in retail sales (0.3% YoY vs. -0.7 in November) were recorded for the first time since March 2013. In the whole Q4 real retails sales rose by 6.0% YoY vs. a 6.2% increase in Q3, which supports our forecast of stabilization of private consumption dynamics in Q4 vs. Q3 (3.9% YoY).
Is this the end of the slowdown?
The data on industrial production, retail sales, and construction and assembly production in Q4 pose a significant upside risk to our scenario, in which economic growth will slow down to 1.7% YoY in Q4 from 2.5% in Q3. The aggregate impact of today's data is slightly positive for PLN and yields on Polish bonds, we believe.