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Effect of Easter and May holidays caused slowdown of retail sales

Retail sales below expectations

In accordance with the Polish Central Statistical Office's (GUS) data that have been released today, retail sales in enterprises employing more than 9 people increased in current prices by 7.3% YoY in May vs. a 13.6% increase in April, running below our forecast (8.5% YoY) and the market consensus (8.3%). The sales dynamics in constant prices decreased to 5.6 % in May vs. 11.9% in April.

Effect of Easter and May holidays caused slowdown of retail sales

The sharp slowdown of real retail sales growth resulted mainly from lower sales dynamics in the categories: "food, beverages and tobacco products” (0.9% YoY in May vs. 18.2% in April) and "retail sales in non-specialized stores” (9.1% YoY vs. 20.7%). The decrease in retail sales in these categories resulted from different timing of Easter holiday in 2018 and 2019 (see MACROpulse of 23/5/2019). The shift in the timing of the holiday was conducive to significantly higher retail sales dynamics in April 2019 and their marked decrease in May. In addition, conducive to lower retail sales dynamics in May was a decrease in sales in the category “textile, clothing, footwear”. Due to extremely cold May, the shopping for clothing and footwear from the summer collection was done later than usual this year.

We believe that the “long weekend” effect may also have been the reason for weaker total retail sales in May. The timing of holidays in May 2019 supported longer leaves of absence which has probably limited retail trade volume. The underestimation of this effect may have been responsible for the fact that May retail sales dynamics ran below the forecasts.

Favourable outlook for retail sales

Retail sales dynamics in May were in line with the medium-term trend (excluding the disruptions related to the Easter holidays). We expect that the retail sales growth rate will remain high in the coming months, supported by strong labour market, optimism of consumers, and payment of social transfers. Today’s data support our forecast of consumption growth in Q2 (5.0% YoY vs. 3.9% in Q1).

Slowing public investments limit construction-assembly production

According to GUS data, the construction-assembly production dynamics dropped to 9.6% YoY in May vs. 17.4% in April, running below our forecast (16.0%) and the market expectations (15.4%). Seasonally-adjusted construction-assembly production decreased by 2.7% MoM in May.

Especially noteworthy in the construction-assembly production growth in May is a sharp decrease in the production dynamics in the categories "civil engineering facilities” (down to 8.8% YoY vs. 32.7% in April), indicating decreasing investment activity of public sector entities. Thus, the May data support our scenario, in which the coming quarters will see a deceleration in production growth, mainly due to the ending of the public investment cycle (including the end of local governments' "investment peak”). Such tendency will also be consistent with the expected by us profile of EU funds absorption within the current programming period (see MACROmap of 10/6/2019). This scenario is supported by the GUS survey results for construction, pointing to a marked decrease recorded in recent months in the current and expected domestic orders portfolio.

Slight downside risk to our forecast of economic growth

Today’s data on the May retail sales and construction-assembly production in Poland pose a slight downside risk to our forecast of GDP growth in Q2 (5.0% YoY). They are also slightly negative for PLN and Polish bond yields.