The inflow of refugees from Ukraine supports retail sales

In accordance with the GUS data published today, nominal retail sales reported by businesses having more than 9 employees went up to 22.0% YoY in March comparing to 16.5% in February, running slightly above our forecast (21.4%) and markedly above the market consensus (19.5%). Retail sales in constant prices grew by 9.6% YoY in March vs. 8.1% in February. Seasonally-adjusted retail sales in constant prices increased by 1.4% MoM in March, reaching an all-time high once again.

The inflow of refugees from Ukraine, which is a lasting factor supporting turnover in retail trade was the main driver of the retail sales growth acceleration in March. The said factor more than compensated for the negative impact on households’ expenses that was exerted by the rising inflation reducing the purchasing power of the income that households have at their disposal and by the deterioration in consumer sentiments as a result of the war in Ukraine (see MACROpulse of 15/04/2022). A strong acceleration of the annual sales growth in the “clothing and footwear" category (41.9% YoY vs. 2.6% in February) and a significant sales growth in the “furniture, electronic goods and household appliances” (2.8% YoY vs. -4.4% YoY) are indicative of a strong impact of the inflow of Ukrainian refugees on retail sales. In our opinion, the inflow of refugees also drove the sales strongly up in non-specialised stores such as supermarkets or discount stores (such sales results are not reported since 2020). We expect the retail sales growth to slow down significantly in April, due to the increasing number of refugees going back to Ukraine and poorer demand for items that are purchased on a one-off basis such as clothing, footwear, furniture, electronic goods or household appliances.

Further symptoms of recovery in private investments

In accordance with the data published by the GUS, construction and assembly production increased by 21.0% YoY in March comparing to a 20.9% growth in February, running above the market consensus (15.2%) and our forecast (19.0%). Seasonally-adjusted construction-assembly production increased in March by 5.1% MoM. Consequently, the March production once again stood above the level reported in February 2020 (by 3.3%), which was the last month when the activity in the construction sector was not materially affected by the pandemic. Construction data for March confirms that the employment rate decline in the construction sector related to the outflow of Ukrainian workers, which was reported in the mass media, has not contributed to any significant activity slowdown in the construction sector so far (in accordance with the GUS data published yesterday, employment in that sector grew by 0.2% MoM in March). This opinion is also supported by the GUS business survey results published today, which show that only 7.4% of construction enterprises taking part in the survey reported a “significant” outflow of Ukrainian workers in March 2022.

The annual construction and assembly production growth stabilisation in March resulted from a significant growth acceleration in the “civil engineering works" category (23.2% YoY in March vs. 2.9% in February), a slowdown of growth in the “specialised construction activities” category (13.7% YoY vs. 22.2%) and a strong growth in the “construction of buildings” category (44.9% vs. 38.7%). This means that the production growth in the “construction of buildings” category was the highest growth ever recorded in the data history. The continuing, strong acceleration of growth in this particular segment of the construction sector is indicative, like in the previous months, of the recovery in private (including housing) investments: the average number of apartments under construction in January-February 2022 was 4.7% higher than in the same period of 2021. We expect the recovery in the construction sector to be curbed in the coming months by the growing barriers on the supply (lack of qualified workforce and a strong increase in the prices of construction materials) and demand side (poorer availability of mortgage loans and poorer demand for apartments bought for cash due to the uncertainty caused by the war in Ukraine). This opinion is supported by the seasonally-adjusted GUS business sentiment indicator showing the domestic orders portfolio of construction companies, which dropped in March to the lowest level since August 2021.

Significant upside risk for GDP growth forecast for Q1 2022

Today’s data on retail sales and construction and assembly production combined with yesterday's data on labour market and industrial production in March (see MACROpulse of 21/04/2022) is indicative of a significant upside risk for our forecast, in which the Polish GDP increased by 6.1% YoY in Q1 2022 comparing to a 7.3% growth in Q4 2021. Consequently, we believe that there is a significant upside risk to our interest rate forecast in which the NBP reference rate hike cycle will come to an end in Q2 2022 at 5.50%.

In our opinion, the data on retail sales and construction-assembly production are positive for the PLN and the yields on Polish bonds.