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Is it flood that lies behind the slump in retail sales?

Retail sales slumping in September

In accordance with the GUS data published today, nominal retail sales reported by businesses having more than 9 employees shrank from 3.2% YoY in August to -2.2% in September, running markedly below our forecast (2.8%) and market consensus (3.2%). The growth in retail sales in constant prices slowed from 2.6% YoY in August to -3.0% in September, printing markedly below market consensus (2.1%) and our forecast (2.0%) as well. Consequently, it reached the lowest level since July 2023. Moreover, real retail sales growth slowed in all categories except “clothing and footwear”, which indicates that the consumer demand weakened broadly.

Is it the flood that should be blamed for it?

Seasonally-adjusted retail sales in constant prices decreased by 6.7% MoM in September. Historically, it was a relatively strong drop, half as deep as the one that occurred during the first wave of the COVID-19 pandemic (-13.3% and -14.8% in March and April 2020, respectively). We believe that the slump in retail trade is largely attributable to the flood, which had a direct impact on sales decline in the flooded areas. However, the flood depressed consumer sentiment in other parts of the country as well, leaving consumers more prone to saving. Moreover, it caused some holidaymakers to cancel their trips to the south-west of Poland, which in turn led to lower tourist spending.

Apart from the flood, there was also a number of fundamental factors such as real wage growth slowdown, inflation rise or consumer sentiment stagnation that exerted a negative impact on retail sales in September, but in our opinion that impact was not as heavy as the one brought by the flood. Consequently, we expect the retail sales to bounce back in October once it eases off.

GDP growth to slow down in H2 2024

Today’s data on retail sales underpin our current scenario of gradual consumption slowdown in the coming quarters (3.3% YoY in Q3 and 2.9% in Q4 vs. 4.7% in Q2). Today’s data on retail sales combined with yesterday’s data on industrial production, construction and assembly production, average wages, and employment in the enterprise sector underpin our forecast of moderate economic growth in Q3 (2.7% YoY vs. 3.2% in Q2). The scale of recovery in the services sector remains the main upside risk for that forecast.

We believe that today’s data on retail sales is negative for the PLN and yields on Polish bonds.