Good finish of the year 2023

Construction and assembly figures much better than expected

In accordance with the data published by the GUS, construction and assembly production increased to 14.0% YoY in December from 3.9% in November, running markedly above the market consensus and our forecast (4.0%). Today’s readings come as a particularly positive surprise given the unfavourable calendar effects that were driving the real construction-and-assembly production growth down (the number of working days in November 2023 was the same as the year before, while in December 2023 there were 2 working days less than in 2022). Seasonally-adjusted construction and assembly production increased in December by 8.5% MoM.

Construction and assembly production growth between November and December resulted from growth in all categories: “specialised construction activities” (4.7% YoY in December vs. -5.6% in November), “civil engineering works” (19.2% YoY vs. 5.3%) and “construction of buildings” (13.4% YoY vs. 10.7%). Growth in activity in all segments was aided by last year’s low base effects. Furthermore, production growth in the “civil engineering works” category was boosted 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).

As regards January, we expect the construction and assembly production growth to slow rather rapidly due to the impact of high base effects, adverse weather conditions (severe snowfalls) and the easing effect of absorption of EU funds.

Industrial production supported by construction-related sectors

In accordance with the GUS data, industrial production sold in enterprises employing more than 9 people decreased by 3.9% YoY in December compared to a 0.3% drop in November, running above the market consensus and our forecast (-5.0%). Industrial production growth was largely driven down by the statistical effect of the unfavourable difference in the number of working days between November and December that we have mentioned above. Seasonally-adjusted industrial production increased by 2.9% MoM in December. Consequently, seasonally-adjusted production figures reached the highest level since December 2022, and were just below the all-time production high seen in March 2022.

Given the impact of unfavourable calendar effects, production slowdown was broad-based, and was seen in the three main segments of the industry, i.e. export-oriented branches (-5.3% YoY vs. -2.6% in November), construction-related sectors (-5.8% vs. -5.7%) and other categories (-2.9% vs. 1.3%). Data shows that recovery in activity seen in December was an important factor stabilising industrial production. However, production in export-oriented sectors slowed for the fourth month running, which is connected with the continuing activity decline in the manufacturing sector in the Eurozone, including in Germany, which translates into a lower demand for Polish intermediate goods. We believe this will be the main factor curbing the recovery in the Polish industry in Q1 2024.

Decline in retail sales continues

In accordance with the GUS data published today, nominal retail sales reported by businesses having more than 9 employees went down to 0.5% YoY in December from 2.6% in November, running markedly below the market consensus (4.6%) and our forecast (5.2%). The growth in retail sales in constant prices slowed down from -0.3% YoY in November to -2.3% in December, running markedly below the market consensus (2.5%) and our forecast (1.5%). Seasonally adjusted retail sales in constant prices decreased for the second month running in December, by 2.9% MoM.

Total annual real sales growth was driven down primarily by poorer sales of fuels. It is worth noting, though, that the YoY drop in sales expressed in constant prices was seen in most categories except for “motor vehicles, motorcycles, parts” and “pharmaceuticals, cosmetics, orthopaedic equipment”. Activity in retail sales in December was curbed by households’ poorer sentiments reflected in a decrease in the consumer confidence indicator regarding current major purchases and a slower growth of real wage fund (see below).

Today’s worse-than-expected data on retail sales indicates a slight downside risk to our consumption growth forecast for Q4 (2.3% YoY vs. 0.8% in Q3). However, we are still optimistic about retail sales and consumption in the months to come. Private consumption will be supported by an upward adjustment of the benefit paid under the Family 500+ programme to PLN 800, minimum wage increase, inflation drop and increased wages of teachers and state administration personnel. Sales, however, will be curbed (particularly in the “furniture, radio, TV and household appliances” category) by a relatively low number of completed dwellings (see MACROmap of 22/01/2024).

Mixed data from labour market

In accordance with the GUS data published today, nominal wage growth in the sector of businesses employing more than 9 employees decreased from 11.8% YoY in November to 9.6% in December, running below the market consensus (11.9%) and our forecast (12.4%). The main reason behind the forecast error was the difficulty connected with estimating the exact scale of paid bonuses and rewards, which tend to have a substantial share in wages paid out every December. In real terms, after the adjustments made to take into consideration the changes in prices, wages in companies rose by 3.2% YoY in December comparing to a 4.9% growth in November. Nominal wage growth slowdown was broad-based, and was seen in most categories reported by the GUS. Such trend may be indicative of the wage pressure easing accompanying the inflation drop.

Employment growth in the enterprise sector went down to -0.2% YoY in December vs. -0.1% in November, running below the market consensus, which was consistent with our forecast (-0.2%). The number of employed rose by 1.3k between November and December, mainly due to the increase in the number of FTEs in the “trade; repair of motor vehicles” (+4.1k MoM) and “construction” (+1.1k) categories. At the same time, restructuring processes in the industrial manufacturing sector were the main factor driving the employment down (-5.0k MoM).The first MoM employment growth since July 2023, which was seen in December may be indicative of reversal of unfavourable employment trends. This conclusion is supported by business survey results published by the GUS.

Employment growth acceleration combined with a slower growth in real wages in the enterprise sector resulted in a decrease in the real wage fund growth rate in the enterprise sector, the rate being the product of employment and average wage adjusted for changes in prices, to 3.0% YoY in December vs. 4.7% YoY in November. Nonetheless, the average three-month real wage fund growth accelerated from 1.1% YoY in September to 4.5% in December, which was the highest rate since April 2022. It supports our consumption acceleration forecast for Q4 2024.The significant inflation drop that we expect to take place will boost wage fund and consumption growth in the quarters to come (see MACROmap of 15/01/2024).

Slight downside risk for GDP growth forecast in Q4

Today’s data support our forecast, in which the economic recovery continuing since Q1 2024 and reflected in the seasonally-adjusted GDP growth will be seen in Q4 as well. However, we believe there is a slight downside risk to our annual GDP growth forecast (acceleration from 0.5% YoY in Q3 to 1.9% in Q4).

We believe that the overall tone of today’s data from Polish economy is slightly positive for the PLN and the yield on Polish bonds.