Further symptoms of recovery in the construction sector

Prices growing at a record pace in retail sales

In accordance with the GUS data published today, nominal retail sales reported by businesses having more than 9 employees went up by 10.7% YoY in August comparing to a 8.9% growth in July, running above the market consensus that was consistent with our forecast (10.0%). Retail sales in constant prices increased by 5.4% YoY in August comparing to an increase of 3.9% in July. This means that the retail sales deflator in August stood at 5.0% YoY comparing to 4.8% in July, thus equalling its record high that was seen in February 2007. Seasonally-adjusted retail sales in constant prices increased by 0.4% MoM in August, which means that they were 2.6% higher comparing to February 2020, which was the last month when the sales were not materially affected by the pandemic.

Pent-up demand structure is changing

As regards the data structure, particularly noteworthy is the continuing, strong dynamics in the “textiles, clothing, footwear” category of retail sales expressed in constant prices (with 3-month moving average falling from 28.1% in July to 22.2% YoY in August). At the same time, the August data confirmed a strong decline in sales dynamics comparing to the last couple of months in such categories as “motor vehicles, motorcycles, parts” (with 3-month moving average falling from 18.7% in July to 3.5% YoY in August) and “furniture, electronic goods and household appliances” (falling from 3.6% to 1.2%). Bearing in mind the results of the sentiment survey published by the GUS last month, which showed that the “current major purchases” indicator for August had fallen to the lowest level since April 2021, it may suggest that the so-called pent-up demand is shifting from relatively expensive durable goods that are not purchased frequently (e.g. vehicles, furniture, electronics) to relatively cheap durable goods that are purchased more frequently (incl. clothing and footwear). It is worth noting that the relatively cold August had a positive impact on retail sales in the “textiles, clothing, footwear” category. We are not changing our opinion that the impact of the pent-up demand on retail sales will continue to fade in the coming months.

Strong construction and assembly production growth

In accordance with the data published by the GUS, the construction and assembly production increased by 10.2% YoY in August comparing to a 3.3% growth in July, running above the market consensus (7.5%) and our forecast (8.4%). Construction and assembly production growth was largely driven up by the statistical effect of a favourable difference in the number of working days between July and August (in August 2021, there were two days more than in August 2020, while in July 2021, there was one business day less comparing to the previous year). Seasonally-adjusted construction and assembly production increased by 1.6% MoM in August, but it still remains much below the February 2020 level (it is 7.5% lower). At the same time, it was the first growth in seasonally-adjusted construction and assembly production after two consecutive months of falling. This means that our scenario in which the seasonally-adjusted construction and assembly production decline seen in the last couple of months was to be but a disruption in the cycle that would go back to the rising trend has materialised (see, for example, our MACROpulse of 20/08/2021).

Further symptoms of recovery in the construction sector

As regards the data structure, particularly noteworthy is the continuing strong growth in construction and assembly production dynamics in the “specialised construction activities” category including site preparation works (29.7% YoY in August vs. 17.1% in July). This supports our scenario in which we will see recovery in the construction sector in the quarters to come. However, the developments in public investments, including the investments in railways due to the approval of the National Recovery Plan having been postponed by the European Commission are a significant risk factor for our scenario.

Today’s data on retail sales and construction and assembly production combined with yesterday’s data on industrial production (see MACROpulse of 20/09/2021) carry a downside risk for our forecast, in which the Polish GDP in Q3 2021 will increase by 5.4% YoY comparing to an 11.1% increase in Q2. At the same time, the data are neutral for the PLN and yields on Polish bonds.