Retail sales and construction and assembly production figures below expectations

Real retail sales continue to fall sharply, though not as much as before

In accordance with the GUS data published today, nominal retail sales dynamics reported by businesses having more than 9 employees decreased to 1.8% YoY in May comparing to 3.4% in April, running below our forecast (2.3%) and market consensus (4.0%). Retail sales in constant prices fell by 6.8% YoY in May comparing to a 7.3% drop in April. Seasonally adjusted retail sales in constant prices decreased in May by 1.1% MoM. Therefore, May was the fourth consecutive month to see it fall on a month-on-month basis.

Annualised retail sales in constant prices dropped in all categories reported by the GUS in May. In our opinion, it is a consequence of households’ purchasing power decreasing as a result of high inflation. However, in all categories except “furniture, electronic goods and household appliances”, “clothing and footwear” and “pharmaceutical products, beauty products, orthopaedic equipment”, the sales decline was less marked than in April. We believe that it was partly connected with the fading of last year’s high base effect connected with the outbreak of the war in Ukraine and the inflow of refugees. Furthermore, retail trade turnover was supported by returned amounts of personal income tax for 2022, which had been paid in excess; in 2023, the amounts in question were higher, and were refunded to a larger number of individuals than usually due to changes that had been made to the tax system as part of the so-called Polish Deal.

Consumption figures in Q2 still negative

Average real retail sales growth in April-May was -7.1% YoY, down from -4.1% in Q1. This data is consistent with our scenario assuming that consumption growth figures for Q2 2023 will still be negative (-3.5% YoY vs. -2.0% in Q1). At the same time, it is worth noting that consumers’ sentiments about the future are improving despite the current deterioration of consumption demand. GUS’s leading consumer confidence indicator has been following an upward trend for the last couple of months, and in June 2023 it reached the highest value since October 2021. The consumers' optimism combined with the inflation drop that we expect to take place will cause real consumption to accelerate in H2 2023.

Situation in the construction sector still relatively poor

In accordance with the data published by the GUS, construction and assembly production shrank by 0.7% YoY in May comparing to a 1.5% drop in April, running below the market consensus (+1.5%) and our forecast (+2.3%). Production growth slowdown resulted from the last year’s high base effect on the one hand, and the favourable difference in the number of working days on the other hand (in May 2023, the number of working days was the same as in 2022, while in April 2023 there was one working day less comparing to the previous year). Seasonally-adjusted total construction and assembly production shrank by 1.1% MoM in May.

In accordance with the business survey results published by the GUS, June is the fourth consecutive month to see the rise of the general business climate indicator for the construction sector, but historically, the indicator’s value is still relatively low. We continue to believe that the situation in the construction sector will be gradually improving in the months to come, but we will not see any significant recovery there until H2 2023. The data published by the GUS today are indicative of the continuing, strong downward trend in terms of the number of construction permits (-38.8% YoY in May) and housing starts (-26.3%), which indicates that the situation in the housing construction sector is still poor. The situation might only improve after a couple of months in relation to the launching of the Safe 2% Loan programme. Activity in the “civil engineering works” category will be supported by public finances 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).

"Soft landing” scenario for the Polish economy is materialising

Today’s data on construction and assembly production and retail sales combined with yesterday's labour market and industrial production figures are indicative of a slight downside risk to our GDP forecast for Q2 (-0.2% YoY vs. -0.3% in Q1). We maintain our “soft landing" scenario for the Polish economy, in which GDP growth in Poland in 2023 will remain positive despite a significant slowdown (1.2% YoY vs. 5.1% in 2022), which nonetheless will not be accompanied by a significant unemployment growth.

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