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Significant increase in retail sales

Retail sales hit an all-time high

In accordance with the GUS data published today, nominal retail sales reported by businesses having more than 9 employees went up to 4.8% YoY in October from 3.6% in September, printing above the market consensus (4.6%) and our forecast (3.0%). Seasonally adjusted retail sales in constant prices rose for the fifth month running in October, up by 2.1% MoM, hitting an all-time high. Retail sales growth in constant prices went up from -0.3% YoY in September to 2.8% in October, reaching its highest level since September 2022.

Vehicles quickly rising in demand

Data breakdown for October’s retail sales in constant prices shows an increase from 12.8% YoY in September (highest since February 2023) to 15.2% in the “motor vehicles, motorcycles, parts” category, which is particularly noteworthy. It is indicative of households becoming increasingly inclined to buy durable goods, even though the data on sales in the “furniture, electronic goods and household appliances” category (sales down by 4.7% YoY in October vs. a 5.5% drop in September) do not suggest that the recovery in demand for this type of goods is broad-based. It is worth noting that total retail sales excluding the “motor vehicles, motorcycles, parts” category rose, as we have estimated, from -1.0% YoY in September to 2.1% in October, reaching the highest level since November 2022.

Retail trade turnover in October was boosted by the continuing acceleration of real wage fund growth (see MACROpulse of 21/11/2023) aided by the inflation drop (see MACROpulse of 15/11/2023) and by the improving consumer sentiment indicating that the households are becoming increasingly inclined to make the so-called “major purchases”. November saw the continuation of that improvement, which will enliven the consumption demand in Q4 2023. Today’s data on retail sales indicates that consumption growth in Q4 may print ahead of our expectations (2.3% YoY vs. 1.2% in Q3).

Construction and assembly production growth slightly slowing down

In accordance with the data published by the GUS, construction and assembly production shrank from 11.5% YoY in September to 9.8% in October, running below the market consensus (10.5%) and our forecast (10.9%). Seasonally-adjusted construction and assembly production shrank by 1.1% MoM in October. Seasonally-adjusted production decline in October combined with last year’s high base effect (October 2022 having seen a strong month-on-month growth in seasonally-adjusted production) offset the impact of factors driving the annual production growth up (the statistical effect of the favourable difference in the number of working days and a better business climate in the construction sector).

Construction and assembly production growth between September and October was driven down by slowdown in the “specialised construction activities” (down from 10.0% YoY in September to 7.1% in October) and “construction of buildings” (down from 3.9% YoY to 1.1%) categories. “Civil engineering works” saw only a modest decline (17.6% vs. 17.9%), but production in that category remains on a high level, which confirms that the activity in the construction sector is aided primarily by public finances sector entities’ efforts to make use of and settle, in 2023, the EU funds that were made available to them within EU’s previous multi-annual financial framework (2014-2020) and by the prospect of local self-government elections planned for April 2024. The activity recovery in the coming months will be increasingly aided by the recovery in the housing construction boosted by the Bezpieczny Kredyt 2% (A Safe 2% Loan) programme. The scenario outlined above will be supported by better readings of leading confidence indicators for employment and domestic order portfolio expectations among construction firms released over the last couple of months.

Economic recovery to continue in Q4

Today’s data on retail sales and construction and assembly production combined with yesterday’s data on industrial production (see MACROpulse of 21/11/2023) support our forecast, in which the economic recovery continuing since Q1 2023 and reflected in the seasonally-adjusted GDP growth will be seen in Q4 as well, while the annual GDP growth will accelerate markedly from 0.5% YoY in Q3 to 1.9% in Q4. We expect the increase in annual GDP growth rate between Q3 and Q4 to be driven up primarily by a faster growth in private consumption, and today’s data on retail sales is consistent with that scenario.

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