Stabilization of trade and construction activity

Retail sales below 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 0.4% YoY in August vs. a 2.7% increase in July, running significantly below the market consensus (2.4%) and our forecast (3.1%). The sales dynamics in constant prices dropped to 0.5% YoY in August vs. 3.0% in July. Conducive to the decrease in sales dynamics between July and August was the effect of an unfavourable difference in the number of working days (in July 2020 the number of working days was the same as in 2019, while in August 2020 it was one day lower than the year before). Seasonally adjusted retail sales in constant prices was only 0.2% higher from July 2020 and stood at a level that was 1.1% lower from February, namely the last month before the strong impact of the pandemic on the situation in trade.

Support from postponed demand has ended

Noteworthy is that retail sales in constant prices rose in August in MoM terms only in the categories: “food, beverages and tobacco products” and “solid, liquid and gas fuels”. Other categories recorded declines of which the largest was in the category “motor vehicles, motorcycles and parts” (by 16.6% MoM). Thus, the August data strongly contrast with the observed in the recent months sharp increase in sales in the automotive branch and in the categories “furniture, radio-video and household equipment”, “textiles, clothing and footwear” , and “other”. We therefore believe that the postponed demand effect (increase in households’ expenditures not made due to restrictions binding between March and May), boosting sales dynamics recently, has been exhausted. This tendency is also confirmed by a limited scale of the improvement recorded in consumer sentiment and in the sentiment in retail trade in August. We believe that in the light of the deterioration in the labour market and households’ concerns about the second wave of the pandemic, the potential for further increase in retail sales is limited. This supports our forecast in which consumption dynamics will amount to 0.0% YoY in Q3 and will slightly increase to 0.5% in Q4 2020.

Lower production dynamics in construction

According to GUS data, the construction-assembly production declined by 12.1% YoY in August vs. a 10.9% decrease in July, running slightly above our forecast (-12.9%) and markedly below the market consensus (-9.5%), The decrease in the annual dynamics of construction-assembly production resulted from the aforementioned unfavourable calendar effect. Seasonally-adjusted construction-assembly production decreased by 0.1% MoM in August, recording the smallest decline in MoM terms since March 2020. At the same time its seasonally adjusted level was 15.9% lower than in February, namely before the outbreak of the pandemic.

A decrease in the construction-assembly production dynamics in August has been recorded in all the categories: “construction of civil engineering facilities” (-16.9% YoY in July and August), “construction of buildings” (-9.5% vs. -7.6% in July), and “specialized construction activities” (-5.2% vs. -2.9%) which suggests a wide range of the decline in both private and public investments.

We maintain our scenario in which the situation in construction will continue to stay at low levels in the coming months. This scenario is supported by a sharp deterioration in the investment climate in enterprises, the fact that GUS business sentiment indicator reflecting the current level of the orders portfolio of construction companies continues to stay at a very low level, and marked decrease in residential construction activity (the dynamics of housing starts have continuously stayed below zero from March 2020).

GDP dynamics in Q3 still below zero

Today’s weaker-from-the-market-expectations data on retail sales and construction-assembly production are slightly negative for PLN and bond yields. Coupled with the data on industrial production release last week, they support our forecast, in which the Polish GDP will decrease by 2.0% YoY in Q3 2020 vs. a 8.2% decrease in Q2 and the average yearly GDP decrease in 2020 will amount to -2.8%.