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Slight slowdown of economic growth in Q2

Strong foreign demand supports domestic industrial production

In accordance with GUS data, dynamics of sold production of industry in enterprises employing more than 9 people dropped to 4.5% YoY in June vs. 9.1% in May, which was above the market consensus (3.8%) and slightly above our forecast (4.3%). The main reason for the sharp decrease in production dynamics between May and June was an unfavourable difference in the number of working days (in June 2017 the number of working days was lower by one day than in 2016, while in May 2017 it was higher by one day than the year before). Seasonally-adjusted industrial production increased by 0.7% MoM in June.

Like in previous months, high production growth was recorded in the branches with a significant share of exports in the sales of products, trade goods, and materials: "machinery and equipment” (29.8% in June vs. 6.2% in May) and "electrical equipment” (8.6% vs. 13.1%). Production dynamics in the segment "other transport equipment” (-5.8% vs. 6.9%) has visibly decreased; however, this was largely due to the high base effects from the year before. Thus the data confirm the continuing strong foreign demand for goods made in Poland and used for the production of final goods (intermediate goods), as signaled earlier by the June results of business surveys in the German manufacturing indicating the highest growth rate of total new orders since March 2011.

Effects of recovery in construction are also visible in manufacturing

According to GUS data, the construction-assembly production growth rose to 11.6% YoY in June vs. 8.4% in May. It increased despite the above-mentioned unfavourable difference in the number of working days. The increase in the construction-assembly production dynamics resulted from higher output growth rate in the categories: "civil engineering objects” (27.4% YoY in June vs. 25.8% in May) and "specialized construction activities” (4.0% vs. 3.3%), while its decrease in the category: "construction of buildings” (1.2% vs. 10.7%) had an opposite impact. We forecast that in subsequent months the assembly-construction production will show an upward trend due to the expected by us growing absorption of EU funds, significant increase in public outlays on infrastructure and recovery in residential construction.

It should be noted that high against the backdrop of other categories industrial production growth has been recorded in June for the segments: "metals” (7.6% YoY vs. 16.7%), "metal products” (6.2% YoY vs. 13.4%), "other non-metallic products” (5.9% YoY vs. 14.1%), and "rubber and plastic products” (5.9% YoY vs. 12.9%). In our view, this is the effect of the positive impact of the recovery in construction on branches manufacturing goods used in the construction-assembly production.

In the whole Q2 the average dynamics of industrial production dropped to 4.3% vs. 7.1% in Q1, while the construction-assembly production dynamics rose to 8.4% vs. 5.6%. The data support our forecast of GDP growth rate in Q2 2017 (down to 3.9% YoY vs. 4.0% YoY in Q1)

Base effects from the year before limited retail sales growth

In accordance with the GUS data released today, nominal dynamics of retail sales in enterprises employing more than 9 people decreased to 6.0% YoY in June vs. 8.4% in May, which was below our forecast (6.7%) and the market consensus (6.9%). Real retail sales growth dropped to 5.8% YoY in June vs. 7.4% in May. Conducive to lower sales growth in June was the above-mentioned unfavourable difference in the number of working days. Negative for retail sales growth were also the high base effects from the year before related with the Family 500+ scheme (June 2016 was the first month which recorded the positive impact on retail sales of the 500+ scheme – see MACROpulse of 19/7/2016) and Euro 2016. They were reflected mainly in lower sales dynamics in the categories: "textiles, clothing, footwear” (13.5% YoY in June vs. 19.9% in May) and "furniture, audio-video and household equipment” (2.5% vs. 9.5%). In the whole Q2 retail sales in constant prices rose by 6.6% vs. a 7.1% increase in Q1, which supports our forecast that private consumption growth rate dropped to 4.2% YoY in Q2 vs. 4.7% YoY in Q1 2017.

In our view, the aggregate impact of today's data is neutral for PLN and yields on Polish bonds.