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More data signaling upside risk to GDP growth

Retail sales above 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 6.5% YoY in February vs. a 6.6% increase in January, running above the market consensus (6.3%) and below our forecast (6.8%). The sales growth rate in constant prices dropped to 5.6% YoY in February vs. 6.1% in January (revised vs. earlier publication).

Retail sales stay the course

We estimate that the main factor behind the deceleration of retail sales growth were lower dynamics of sales in the category "food, beverages and tobacco products” (1.6% YoY in February vs. 5.2% in January). At the same time, we saw an acceleration of growth in the category "retail sales in non-specialized stores”, which covers i.a. hypermarkets (up to 13.5% YoY in February from 5.5%). A similar scale of changes in the dynamics of these categories (measured by their impact on total retail sales) and their opposite direction may suggest that in February consumers shopped more for food in hypermarkets than in specialized stores. Today it is difficult to say if it was an one-off phenomenon or if it is the beginning of a new tendency.

The slowdown in sales growth resulted also from statistical effects – high base effects (for the category "fuels”) and unfavourable difference in the number of working days. In general, individual categories (with the exception of fuels) continued to record a similar growth rate as the month before.

Consumption will accelerate in Q1

The average dynamics of real retail sales between January and February (5.9% YoY) decreased compared to its average value in Q4 (6.2% YoY). Nonetheless, other data point to strong consumer demand in Q1. GUS data published this week signaled a marked improvement in households' sentiment. The current consumer sentiment indicator was record high in March while the leading indicator was second highest in history. In addition, the labour market data pointed in February to a relatively high increase in employment and to acceleration in corporate wage growth. The factors outlined above support our forecast of retail sales dynamics in Q1 (4.6% YoY vs. 4.3% in Q4). Higher consumption in the coming quarters (in Q2, in particular) will also be supported by the launch of the fiscal package (see MACROmap of 11/3/2019).

Housing construction was a surprise

According to GUS data, the construction-assembly production dynamics increased to 15.1% YoY in February vs. 3.2% in January, running significantly above the market expectations (6.0%) and our forecast (4.5%). Seasonally-adjusted construction-assembly production increased by 7.0% MoM in February.

The marked acceleration in construction-assembly production growth (up by 9.3 pp) resulted from higher production dynamics in the category "construction of buildings” (27.9% YoY in February vs. 2.3% in January). We are attributing this mainly to the ongoing high activity in residential construction. Our view is also supported by data on housing starts (up by 20.4% YoY in February). In addition, February 2018 saw severe frosts which limited the activity in this category at the time thus boosting the dynamics in February 2019 due to low base effects.

In subsequent quarters we expect a deceleration in construction-assembly production growth in 2019, mainly due to the expiration of the public investment cycle (including the end of local governments' "investment peak”). Continuously high activity in housing construction will stabilize the production growth rate.

Upside risk to the forecast of GDP growth

Data on the construction-assembly production combined with industrial production data published yesterday pose an upside risk to our forecast of economic growth in Q1 (3.5% YoY vs. 4.9% in Q4 2019). A precise assessment of the short-term outlook for economic growth will be possible after seeing the full set of monthly data for March. We should bear in mind that the downturn abroad, in Germany in particular, continues to pose a substantial downside risk to economic growth in Poland.

In our view, today's retail sales and construction-assembly production readings are slightly positive for PLN and bond yields.