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Surprisingly good data on retail sales and construction output

Retail sales data print ahead of expectations

In accordance with the GUS data published today, nominal retail sales reported by businesses having more than 9 employees went up to 3.1% YoY in August from 2.1% in July, running above the market consensus (1.8%) and our forecast (2.1%). Seasonally adjusted retail sales in constant prices rose for the third month running in August, up by 1.3% MoM. Retail sales growth in constant prices went up from -4.0% YoY in July to -2.7% in August, reaching its highest level since January 2023.

A marked increase in real wage fund growth, which reached its highest level since July 2022, contributed towards the acceleration in real retail sales growth between July and August (see MACROpulse of 20/09/2023). Improving consumer sentiments also stimulated retail sales in August. August saw a marked increase in the consumer confidence indicator regarding current major purchases (the highest level since January 2022).

The YoY real retail sales growth acceleration seen in August was broad based. It needs to be emphasised that the continuation of positive trends was seen in the sales categories connected with durable goods. Sales growth in the “motor vehicles, motorcycles, parts” category was still relatively strong (up by 3.4% YoY in August vs. 3.8% in July), while in the “furniture, electronic goods and household appliances” category it reached the highest level since February 2023 despite still running very low (-10.6% YoY).

YoY consumption to grow in Q3

Today’s data supports our conclusion saying that seasonally-adjusted retail sales reached their local minimum in Q2, and will be growing from Q3, supported by further improvement in consumer sentiment. Gradually easing last year’s high base effects connected with the inflow of refugees from Ukraine combined with a further real wage fund growth that we expect to take place will be conducive to a further acceleration of YoY growth of sales in constant prices in the months to come. Today’s data supports our forecast in which consumption growth will strongly accelerate from -2.7% YoY in Q2 to 0.2% YoY in Q3.

Construction and assembly production strongly boosted by the use of EU funds

In accordance with the data published by the GUS, construction and assembly production increased to 3.5% YoY in August comparing to a 1.1% growth in July, running above the market consensus (1.1%) and our forecast (0.2%). Seasonally-adjusted total construction and assembly production increased in August by 2.0% MoM, rising for the first time since February 2023. Construction and assembly production growth between July and August was driven up by growth in “specialised construction activities” (0.9% YoY in August vs. -3.4% in July) and “construction of buildings” (-5.0% YoY vs. -7.8%) categories. Production growth in the “civil engineering works” category stayed strong and did not change comparing to July (11.8% YoY). Production growth data breakdown confirms that the activity in the construction sector is currently supported 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).

We expect the activity in the construction sector to keep on growing in the coming months. Construction and assembly production will be supported by the public investments co-financed with the EU funds mentioned above, which will be coming towards an end. A gradual recovery in the housing construction sector supported by the Safe 2% Loan programme and further interest rate cuts conducive to an increased availability of mortgage loans will be another production-boosting factor. The marked increase in the number of mortgage loan applications observed since February 2023, which has been boosted by the Safe 2% Loan programme provides a strong support to our scenario. The recent results of a business survey for the construction sector are also consistent with it. They are indicative of a gradual increase in the expected output over the last couple of months and a growth in the current and expected domestic orders portfolio.

GDP growth in Q3 to become positive again

Yesterday’s slightly-worse-than-expected data on industrial production (see MACROpulse of 20/09/2023) and today’s much-better-than-expected data on retail sales and construction and assembly production for August are consistent with our scenario in which the annual GDP growth will strongly accelerate, from -0.6% YoY in Q2 to 0.5% in Q3. However, even though GDP growth will accelerate in Q3, it will still be markedly slower than assumed in the NBP’s July’s projection. We believe that it will be the main argument that will convince most members of the Monetary Policy Council to apply further interest rate cuts in October. We maintain our forecast, in which the interest rates will be cut twice more: in October and November, each time by 50bp. However, we see an upside risk to this scenario, which stems from the yesterday’s statement made by the NBP Governor, who said that “the room for further interest rate cuts has become much smaller”. The results of October’s parliamentary elections in Poland, which are difficult to predict, add to the uncertainty connected with interest rate forecasts.

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