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Export-oriented sectors still highly resilient

In accordance with the GUS data, the growth of industrial production sold in enterprises employing more than 9 people decreased to 1.0% YoY in December compared to a 4.6% growth in November, running below the market consensus (1.4%) and our forecast (3.0%). A statistical effect coming from an unfavourable difference in the number of working days between November and December (in November 2022, the number of working days was the same as in 2021 while in December 2022 there was one day less than a year ago) drove the industrial production growth down. Seasonally-adjusted industrial production increased by 0.7% MoM in December.

In December, annual production growth slowed down both in export-oriented sectors and in construction-related and other sectors. Like in the previous months, the export-oriented industries with production going up by 8.0% YoY in December vs. an 11.2% growth in November were the factor that made the highest contribution to total industrial production growth. In our opinion, production in export-oriented sectors was strongly supported by the reduction in production backlogs combined with an easing of supply constraints (with shortages of raw materials and components becoming less severe) as shown by the results of December’s economic business survey for manufacturing (see MACROmap of 02/01/2023). Production growth slowdown in construction-related sectors (2.2% YoY in December vs. 9.5% in November) was significantly stronger than it would have been if it had been impacted by the aforementioned effect of working days alone, driven by a surprisingly strong slowdown in activity in the construction sector (see below). What is also worth noting about the data is that the decline in production got stronger in both the sectors that are not focused on exports and those that are not related to constructions (-2.8% YoY vs. -0.4% in November). Consequently, in this category of enterprises, we saw the poorest production growth since May 2020, i.e. since the first lockdown connected with the COVID-19 pandemic. On the whole, the December production data breakdown shows that export-oriented sectors are characterised by relatively high resilience to economic downturn experienced by Poland's main trade partners and that the impact of slowdown of domestic demand (consumption and investments) on the sectors that are relatively strongly linked to the domestic market is growing.

Strong signals of slowdown in housing investments

In accordance with the data published by the GUS, construction and assembly production decreased by 0.8% YoY in December vs. a 4.0% increase in November, which was significantly below market consensus (2.7%) and our forecast (7.5%). Construction and assembly production growth between November and December was driven down by the statistical effect of unfavourable difference in the number of working days mentioned above. Seasonally-adjusted construction and assembly production shrank by 3.7% MoM in December.

As regards the December data structure, particularly noteworthy is the continuing decline in production expressed in annual terms in the “construction of buildings” category (-3.7% YoY vs. -4.2% YoY in November). It is consistent with our scenario in which strong constraints on the supply (a strong growth in the prices of construction materials) and demand sides (poorer availability of mortgage loans, poorer demand for apartments bought for cash, higher interest rates, and poorer demand for investment loans) will be conducive to a gradual slowdown in activity in the housing and commercial construction sectors in the months to come (with companies reducing their investments in buildings and structures). Consequently, the data supports our forecast in which total investments in Q4 2022 declined (-1.8% YoY vs. +2.0% YoY in Q3 2022). We expect total investments to decline even further in Q1 2023, and this scenario is supported by a strong slowdown in sales growth seen in December 2022 in the “specialised construction activities” category including site preparation works (-1.7% YoY vs. 8.6% in November). By comparison, production in the “civil engineering works" category, which is closely linked to public sector investments demonstrated a relatively high resilience (1.4% YoY in December vs. 6.9% YoY in November). We expect the activity in that category to be curbing the production decline in the construction sector in the months to come, which will be connected with public sector entities’ efforts to make use of and settle the EU funds that were made available to them within EU’s previous multi-annual financial framework (2014-2020) in 2023.

Retail sales growth remains positive

In accordance with GUS data released today, nominal retail sales growth reported by businesses having more than 9 employees dropped to 15.5% YoY in December from 18.4% in November, running below market consensus (17.8%) and our forecast (18.0). Retail sales in constant prices grew by 0.2% YoY in December vs. 1,6% in November. Seasonally adjusted retail sales in constant prices shrank by 4.8% MoM in December.

What is particularly worth noting about the December retail sales figures is a further YoY slump in sales in constant prices in the ‘furniture, electronic goods and household appliances’ category (-10.4% in December vs. -7.6% in November). Consequently, sales growth in this category has hit the lowest level since April 2020, i.e. since before the first lockdown. December also saw a continuing YoY drop in sales in the ‘motor vehicles, motorcycles, parts’ category (-2.8% YoY vs. -6.4%). Further YoY drops were also seen in the 'other sale in specialized stores' and 'others' categories. The data shows that household demand for durable goods is weakening with the purchasing power of household disposable incomes falling due to persistently high inflation. Retail sales data for December support our consumption forecast for Q4 (-2.0% YoY vs. 0.9% in Q3), with the drop caused, in our opinion, by lower demand from households for services.

We maintain our GDP growth forecast for Q4

Today’s data on industrial production, construction and assembly production, and retail sales supports our GDP growth forecast for Q4 (1.1% YoY vs 3.6% in Q3). Today's figures eliminate the upside risk to our forecast we saw following the release of business activity data for November. The materialization of our GDP forecast for Q4 will be in line with the Polish economy’s ‘soft landing’ scenario. The scenario expects Poland's GDP growth to slow markedly but remain positive in 2023 (1.2% YoY vs. 4.5% in 2022).

In our opinion, today’s data is slightly negative for the PLN and yields on Polish bonds.