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Further signals of 'soft landing'

Retail sales at all-time high

In accordance with the GUS data published today, the nominal retail sales growth rate in the sector of enterprises employing more than 9 people increased to 18.4% YoY In November from 18.3% in October, running above the market consensus (16.9%) our forecast (15.1%). Retail sales in constant prices expanded by 1.6% YoY in November, compared with a growth of 0.7% in October. Adjusted for seasonal factors, retail sales in constant prices grew by 2.0% MoM in November, thus reaching an all-time high.

Higher starting point for consumption in subsequent quarters

Particularly noteworthy in the retail sales data structure for November is the further decline of annualised sales in constant prices in the ‘furniture, electronic goods, household appliances’ (-7.6% in November vs. -5.0% in October) and ‘motor vehicles, motorcycles, parts’ (-6.4% YoY vs. -5.5%) categories. The data is indicative of households’ weakening demand for durable goods amid the reduced purchasing power of households’ disposable income caused by persistently high inflation. Also noteworthy is the continued sharp drop in retail sales in the ‘fuels’ category (-14.4% YoY in November vs. -20.5% in October), signalling that consumers continue to hold back on purchases due to high prices.

Despite the deepening slump in durable goods sales, the annual growth in sales in constant prices in some categories, including essential goods, accelerated significantly. A markedly improved sales growth was recorded in such categories as ‘food, beverages and tobacco’ (4.8% YoY in November vs. 2.4% in October) and ‘textiles, clothing and footwear’ (18.9% vs. 14.3%). We believe sales in these categories were driven up by increased purchases made by and for refugees from Ukraine in Poland, as well as the growing popularity of Black Friday shopping. November’s retail sales data signal a substantial upside risk to our Q4 consumption forecast (-2.0% YoY vs. 0.9% in Q3). Thus, the starting point for forecasting the consumption growth rate in the coming quarters may be higher than we expected. This assessment is supported by the increase in the main consumer sentiment indices recorded in December.

Recovery in public investment

According to the GUS data, construction and assembly production rose by 4.0% YoY in November, up from 3.9% in March, well above the market consensus (-1.6%) and our forecast (1.1%). Seasonally-adjusted construction-assembly production expanded by 2.5% MoM in November. Consequently, November construction and assembly production was the highest since May 2022.

Particularly noteworthy about the data structure is the acceleration of production growth in such categories as ‘civil engineering works’ (6.9% YoY in November vs. 0.0% in October) and ‘specialised construction activities’ (8.6% vs. 5.1%). The growth seen in these two categories was the highest since March 2022. The data signals an increase in investment activity in the public sector, which may be attributable to efforts to settle completed projects co-financed under the previous EU multiannual financial perspective (2014-2020) before the end of the year. However, the drop (the first since October 2021) in the ‘construction of buildings’ category (to -4.2% vs. 8.9% YoY in October 2022) in annual terms recorded in November supports our scenario according to which the completion of private investments, particularly housing developments, and strong supply constraints (sharp increase in prices of construction materials) and demand barriers (reduced availability of mortgage loans and lower cash demand for apartments) will support a gradual decrease in residential construction activity.

Slowdown in economic growth may be milder

Today’s data on retail sales and construction and assembly production, coupled with yesterday’s figures on industrial production and employment and average wages in the enterprise sector (see MACROpulse of 20/12/2022), signal an upside risk to our Q4 GDP growth forecast (1.1% YoY vs. 3.6% in Q3). The potential materialisation of this risk will entail a higher starting point for GDP growth in the coming quarters. Consequently, data on economic activity and economic sentiment in November and December support our ‘soft landing’ scenario. In this scenario, GDP growth in Poland in 2023 will remain positive despite a significant slowdown (1.2% YoY vs. 4.5% in 2022).

We believe that today’s data is positive for the PLN and yields on Polish bonds.