Temporary slowdown of activity in industry and construction

Recovery in industry halted

In accordance with GUS data, sold production of industry in enterprises employing more than 9 people dropped by 0.6% YoY in April vs. a 11.1% increase in March, which was significantly below our forecast (2.8%) and the market consensus (2.4%). The main reason for the sharp decline in output dynamics between March and April was an unfavourable difference in the number of working days (in March 2017 the number of working days was higher by one day than in 2016, while in April 2017 it was lower by two days than the year before). Seasonally-adjusted industrial production dropped by 1.2% MoM in April, which means slowdown of the upward trend observed since November 2016 for manufacturing activity. On annual basis, seasonally adjusted output growth amounted to 4.0%.

Slowdown of industrial activity is temporary

Like in March, high, against the backdrop of other categories, production growth was recorded in April in branches with a significant share of exports in the sales of products, trade goods and materials: "other transport equipment” (14.2% YoY), "metal products” (6.5%) and "machinery and equipment” (3.3%). These data are in line with our scenario, in which the recovery in the global trade will boost demand for Polish exports to the Eurozone and increase manufacturing activity. This tendency is confirmed by the April's results of PMI business survey which point to a fast increase in new export orders in manufacturing in the Eurozone (growth in orders the fastest since April 2011).

Considering the ongoing increase in external demand, the sharp slowdown of manufacturing activity in April is quite a surprise. In our view, it can be due to the weather anomalies in March and April which shifted the demand for goods manufactured by branches supplying the construction sector from April to March. Consequently, we expect that industrial production will again show an upward trend in May, boosted by external demand and recovery in investments.

Weather anomalies reduced construction activity

According to GUS data, the construction-and-assembly production rose by 4.3% YoY in April vs. a 17.2% YoY increase in March. Seasonally-adjusted construction production dropped by 1.2% MoM. The decline in the construction activity was due to the above-mentioned difference in the number of working days and weather anomalies. We expect that in subsequent months the assembly-and-construction activity will show an upward trend due to the forecasted by us growing absorption of EU funds, significant increase in public outlays on infrastructure, and boom in residential construction. Our scenario is supported by strong growth recorded in Q1 2017 in investments implemented by local governments (up by 11.2% YoY vs. 21.7% YoY decline in Q4 2016). Ongoing increase in the seasonally-adjusted indicator recorded in April for the current portfolio of orders in construction in the domestic market (to the highest level since November 2008) points to favorable outlook for the construction sector.

Slight deceleration in sales growth

In accordance with the GUS data released today, retail sales in enterprises employing more than 9 people rose in current prices by 8.1% YoY in April vs. 9.7% in March, which was slightly above our forecast (8.0%) and below the market consensus (8.9%). The sales in constant prices rose by 6.7% YoY in April vs. 7.9% in March. Conducive to higher annual sales growth in April were calendar effects related to later Easter than last year (sharp increase of sales in the category "food, beverages and tobacco products” from -3.4% YoY in March up to 5.5% YoY). The anomalous weather conditions in March and April 2017 which supported earlier (March) shopping for spring and summer clothes and footwear had an opposite impact (decrease in sales growth in the category "textiles, clothing, footwear” from 26.9% YoY down to 12% YoY ). These anomalies also caused – in our opinion temporary – reduction of demand for cars (sales down by 5.4% vs. an 11.7% increase in March). The April's data on sales are consistent with our scenario of decrease in private consumption growth rate to 3.6% YoY in Q2 vs. 4.1% in Q1 2017.

Today's reading of industrial and assembly-and-construction production in April supports our forecast of GDP growth in Q2 2017 (down to 3.7% YoY vs. 4.0 YoY in Q1 2017). In our view the aggregate impact of today's data is neutral for PLN and Polish bond yields.