Solid basis for consumption recovery, “investment peak” ends in local governments

Retail sales growth slows down

In accordance with the GUS data published today, nominal retail sales dynamics reported by businesses having more than 9 employees decreased to 4.3% YoY in April comparing to 6.0% in March, running below market consensus (5.9%) and above our forecast (3.5%). The growth in retail sales in constant prices slowed down from 6.1% YoY in March to 4.1% in April, running below the market consensus (5.1%) and above our forecast (3.0%). Sales growth was driven down by Easter holidays falling earlier than in the previous year (March in 2024 vs. April in 2023), with Easter date this year being conducive to increased expenses in March. Seasonally-adjusted retail sales in constant prices decreased by 3.5% MoM in April. In our opinion, such a strong drop in seasonally-adjusted retail sales resulted to a great extent from the difficulties related to the adjustment of data for strong effects of Easter purchases made in March. Consequently, we expect the seasonally-adjusted retail sales to grow in May, which means that the upward trend for sales growth seen over the last couple of quarters would continue.

Solid basis for consumption demand recovery

The main factor driving the sales growth down in April were the slowing sales of foods in specialised stores, which dropped from 6.6% YoY in March to -6.8% in April, driven by the effect of Easter purchases mentioned above, but still the real sales growth accelerated in most of the remaining categories. Particularly noteworthy is the acceleration seen in the “motor vehicles, motorcycles, parts” category (33.8% YoY vs. 13.5% in March), which was driven by last year’s low base effect. Consequently, the category saw the strongest growth since December 2010, with the exception of the period between March and May 2021, which is not taken into account due to pandemic-related distortions that exerted a strong impact on retail sales growth figures. A strong acceleration in sales growth was also seen in the “furniture, electronic goods and household appliances” category (-3.3% vs. -8.5%). In our opinion, such substantial acceleration in the aforementioned categories (which include durable goods) boosted by a quick growth of the real wage fund (see MACROpulse of 22/05/2024) indicates that the consumption demand recovery has a solid basis. Our conclusion is supported by the continuing, strong growth in sales excluding foods sold in specialised stores (7.6% YoY in April vs. 5.9% in March). Today’s data are thus indicative of a slight upside risk to our consumption growth forecast (4.3% YoY in Q2 vs. 3.5% in Q1). We continue to believe that consumer demand recovery will be the main economic growth driver in both Q2 and the entire 2024.

“Investment peak” ends in local governments

Construction and assembly production increased to -2.0% YoY in April comparing to -13.2% in March, running above the market consensus (-5.0%) and our forecast (-3.0%). Industrial production growth was largely driven up by the statistical effect of a favourable difference in the number of working days between March and April (in April 2024, there were two days more than in the previous year, while in March 2024, there were two days less than in March 2023). Seasonally-adjusted construction and assembly production increased in April by 2.3% MoM.

Without taking seasonal factors into consideration, production growth between March and April was accelerated by a stronger growth in the “civil engineering works” (7.8% YoY in April vs. -17.8% in March) and “construction of buildings” (-5.9% YoY vs. -16.1%) categories. However, growth slowed substantially in the “specialised construction activities” category (down to -10.5% from -3.2%) despite the aforementioned favourable impact of the number of working days on production. The strong production slowdown in this category was caused to some extent by the last year’s high base effect. However, it is worth noting that this category includes the performance of finishing construction works, and we believe that April’s substantial slowdown in activity in this area was connected with local government elections held in that month, with local governments bringing their investments to a close in the last weeks before the elections (end of the “investment peak” in local governments).

Is it the beginning of a recovery in the construction sector?

Seasonally-adjusted month-on-month construction and assembly production growth seen in April is an optimistic signal bearing in mind that the demand in the construction sector is currently being harnessed by a reduced absorption of EU funds (see MACROmap of 18/03/2024). In our opinion, today’s data indicates that the activity in the construction sector is back on the upward trend having reached its local minimum last March, although we need to wait for May’s data to be released to be able to confirm this conclusion. The beginning of a recovery in the construction sector is indicated at by the number of apartments under construction, which rose for the second month running, up to 817.6k in April from 812.2k in March and 806.4k in February. We expect the activity in the construction sector to continue to recover gradually in the months to come, supported by both the increase in activity in the housing construction sector and the performance of projects under the National Recovery Plan. Our conclusion is consistent with the results of the business survey for the construction sector, which are indicative of potential production recovery in the quarters to come (see MACROmap of 06/05/2024).

GDP growth to substantially accelerate in Q2

Today’s data on retail sales and construction and assembly production in April combined with yesterday’s data on industrial production in that month (see MACROpulse of 22/05/2024) carry an upside risk for our forecast, in which Polish GDP in Q2 is to increase by 2.7% YoY. 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.