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“Soft landing” is still the baseline scenario

Real retail sales keep on declining

In accordance with the GUS data published today, nominal retail sales dynamics reported by businesses having more than 9 employees decreased to 3.4% YoY in April comparing to 4.8% in March, running below our forecast that was consistent with the market consensus (3.8%). Retail sales in constant prices fell by 7.3% YoY in April, dropping at the same rate as in March. It was its strongest drop since May 2020, i.e. since the first lockdown connected with the outbreak of the COVID-19 pandemic. Seasonally-adjusted retail sales in constant prices increased in April by 1.1% MoM.

Annualised retail sales in constant prices dropped across many categories in April, the drop having been seen in 7 out of 8 categories reported by the GUS, i.e. in all categories except for “clothing and footwear”. In our opinion, it is a consequence of households’ purchasing power decreasing as a result of high inflation. The sales decline slowed down slightly in some categories: “fuels”, “furniture, electronic goods and household appliances”, “other sales in specialised stores” and “others”. We believe that it was partly connected with the partial fading of last year’s high base effect connected with the outbreak of the war in Ukraine and the inflow of refugees. Furthermore, purchases in those categories were 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.

Private consumption to increase in year-on-year terms only in H2 2023

Today’s data on retail sales, which are indicative of its significant decline, are consistent with our scenario in which consumption growth in Q2 2023 will still be negative. 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 “major purchases trends in next 12 months” indicator has been following an upward trend for the last couple of months, and in April 2023 it reached the highest value since May 2022. The consumers' optimism combined with the inflation drop that we expect to take place will cause real consumption to accelerate in H2 2023.

Construction and assembly production figures come as an unpleasant surprise once again

In accordance with the data published by the GUS, construction and assembly production increased by 1.2% YoY in April comparing to a 1.5% drop in March, running below the market consensus (1.8%) and our forecast (3.0%). Such production growth figures are the result of the last year’s low base effect on the one hand, and the unfavourable difference in the number of working days on the other hand (in March 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). Total seasonally-adjusted construction and assembly production increased in April by 0.1% MoM.

In accordance with business survey results published by the GUS, April was the second consecutive month to see the indicator for construction and assembly production expected in the 3-month horizon rise but, historically, the indicator is still on a relatively low level. 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 (-27.0% YoY in April) and housing starts (-28.1%), 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) (see MACROmap of 13/02/2023).

The "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 downside risk to our GDP forecast for Q2 (0.2% YoY vs. -0.2% in Q1). The upside risk to our GDP growth forecast for the entire 2023 is therefore lower (see MACROmap of 16/05/2023). The data for April are consistent with our “soft landing" scenario for the Polish economy, in which GDP growth in Poland in 2023 will remain positive despite a strong slowdown (1.2% YoY vs. 5.1% in 2022), and the latter 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.