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September retail sales and construction output overshadowed by the pandemic

Industrial production has returned to pre-pandemic level

In accordance with GUS data, the sold production of industry in enterprises employing more than 9 people increased by 5.9% YoY in September vs. a 1.5% increase in August, running slightly above our forecast (5.3%) and markedly above the market consensus (3.8%). The main reason for the increase in the dynamics of industrial production between August and September was a favourable difference in the number of working days (in August 2020 the number of working days was one day

Retail sales slightly above expectations

In accordance with GUS data that have been released today, retail sales in enterprises employing more than 9 people increased in current prices by 2.7% YoY in September vs. a 0.4% increase in August, running above the market consensus (2.2%) and our forecast (2.0%). The sales dynamics in constant prices rose to 2.5% YoY in September vs. 0.5% in August. Conducive to the increase in sales dynamics between August and September was the effect of a favourable difference in the number of working days (in August 2020 the number of working days was one day lower from 2019, while in September 2020 it was one day higher than the year before - including one day off for holiday falling on a Saturday in August 2020). Seasonally adjusted retail sales in constant prices were lower by 1.0% compared to August 2020. It means that in September retail sales were by 2.1% lower from February, namely the last month before the strong impact of the pandemic on the situation in trade.

Sales structure still impacted by the COVID-19 pandemic

Especially noteworthy in the structure of retail sales in September is a marked increase in the category “motor vehicles, motorcycles, and parts” (up by 11.2% MoM in nominal terms) being the highest increase recorded in September since 2015. Consequently, the annual sales dynamics in this category rose in constant prices from -5.0% YoY in August to 4.9%. These data indicate that, after the disturbances resulting from the restrictions between March and May 2020 and reduced sales in the holiday period, the sales dynamics in this category have resumed an upward trend. In our view, car sales in September were additionally supported by consumers’ concerns relating to the use of public transport during the COVID-19 pandemic and accelerated decisions to buy cars due to the escalation of the pandemic signaled by the data on the number of coronavirus infections. Noteworthy is also the ongoing fast increase in sales in the category “furniture, radio-video and household equipment” (8.6% YoY in September vs. 10.2% in August), which in our view is due to a wider scope of remote working and households using the period of lower mobility for home renovations.

Marked deterioration of consumer sentiment is negative for consumption in Q4

October saw a marked deterioration of consumer sentiment. A decrease was recorded for both the views concerning the anticipated change in the household’s financial situation in the next 12 months (this indicator was the lowest since June 2020) and the indicator reflecting the propensity to make major purchases (also at the lowest since June). In our view, the deterioration of consumer sentiment resulted mainly from the restrictions (so-called yellow and red zones) introduced in October due to the escalation of the COVID-19 pandemic as well as households’ concerns about the further course of the pandemic. The surprisingly high increase recorded in COVID-19 infections in October with fast increase in the number of persons in hospitals due to coronavirus infection signals a high likelihood of subsequent restrictions which will have a negative impact on retail sales and consumption. We therefore see a downside risk to the expected by us consumption dynamics in Q4 (0.0% YoY).

Construction-assembly production is stable but low

According to GUS data, the construction-assembly production decreased by 9.8% YoY in September vs. a 12.1% decline in August, running slightly below our forecast (-9.0%) and above the market consensus (-10.6%), The increase in the annual dynamics of construction-assembly production resulted from the aforementioned favourable calendar effect. Seasonally-adjusted construction-assembly production has not changed in September compared to August. This means that its seasonally adjusted level was ca. 16% lower than in February, namely before the outbreak of the pandemic.

A decrease in the construction-assembly production dynamics in September has been recorded in all the categories: “construction of civil engineering facilities” (-14.5% YoY vs. -16.9% YoY in August), “construction of buildings” (-6.3% vs. -9.5%), and “specialized construction activities” (-4.4% vs. -5.2%) which suggests that the decline in construction was wide ranging.

We maintain our scenario in which the construction activity will continue to stay at low levels in the coming months. We expect that in Q4 2020 and Q1 2021 the construction-assembly production will be limited by the second wave of the COVID-19 pandemic, conducive to further deterioration of the investment climate and lower corporate investments. This scenario is supported by the fact that GUS business sentiment indicator reflecting the current level of the orders portfolio of construction companies continues to stay at a level that is low against historical backdrop.

GDP higher in Q3 and lower in Q4

Today’s data on retail sales and construction-assembly production are neutral for PLN and bond yields. The released this week data on economic activity in September signal a marked upside risk to our forecast of GDP dynamics in Q3 (-2.0% YoY). In turn, the data on business sentiment in October and the aforementioned imposed and anticipated subsequent restrictions resulting from the escalation of the COVID-19 pandemic point to a significant downside risk to our forecast of GDP growth in Q4 (-2.8% YoY). We will present our revised macroeconomic scenario in the next MACROmap.