Another good data prior to the outbreak of epidemic

Retail salesin February visibly 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 9.6% YoY in February vs. a 5.7% increase in January, running slightly above our forecast (7.0%) and above the market consensus (5.9%). The sales dynamics in constant prices increased to 7.3% in February vs. 3.5% in January. The main factor behind faster retail sales growth between January and February was the statistical effect in the form of a favourable difference in the number of working days (in January 2019 the number of working days was 1 day lower from 2018 while in February 2020 it was the same as the year before). Especially noteworthy in the data structure is marked acceleration in sales growth in the categories “motor vehicles, motorcycles and parts” (increase in sales in constant prices by 6,9% YoY in vs. 3.5% in January, the highest since September 2019) and “furniture, audio-video and household equipment” (9.2% YoY vs. 5.8%). The data on the February sales point to households’ increased propensity to spend in the period preceding the outbreak of COVID-19 epidemic. Due to the spread of the epidemic, limiting households’ mobility, as well as stringent restrictions on the side of supply of many services resulting from the measures taken by the government to combat the epidemic, the usefulness of the data on the February sales for forecasting consumption in 2020 is very limited.

Construction-assembly production is still on weather steroids

According to GUS data, the construction-assembly production increased by 5.5% YoY in February vs. a 6.5% increase in January, running clearly above the market consensus (0.9%) and our forecast (0.0%). Seasonally-adjusted construction-assembly production increased by 3.3% MoM vs. a 9.4% increase in January. The construction-assembly production has sharply increased despite the very high last year’s base and the recently observed end of cycle in public investments. This suggests that like in January the increase in production resulted from the exceptionally mild winter. This view is supported by the results of GUS business surveys, in which the percentage of companies pointing to weather conditions as a barrier to operations in February was record low. Consequently, the positive impact of weather conditions on the construction-assembly production is temporary. High activity in construction is consistent with the yesterday’s data on industrial production, which pointed to high output dynamics in the segments responsible for the supply of raw materials and consumables used in construction projects (see MACROpulse of 19/3/2020).

February data overshadowed by deterioration of outlook for economic growth

Coupled with yesterday’s data on industrial production, the February data on retail sales and construction-assembly production signal a slight upside risk to our forecast of GDP growth in Q1 (2.0% YoY). In this forecast we have factored in the potential impact of COVID-19 epidemic on the economic activity in March, including the effect of sharp reduction of households’ demand for some goods and services and increased purchases of essential consumer goods. However, we see a downside risk to this forecast owing to difficulties in foreign trade resulting from the restoration of borders and disturbances in industrial production and construction-assembly production due to broken supply chains in the production of many companies resulting from the slowdown of imports and the need to reorganize production processes to ensure adequate protection of employees. The said factors also signal a substantial downside risk to our forecast of economic growth in the whole 2020. This forecast should also factor in the impact of the “anti-crisis shield” program that has been announced by the government this week. We will present our analysis of this impact in the next MACROmap.