Calendar effects limited output growth

In accordance with GUS data, sold production of industry in enterprises employing more than 9 people rose by 1.2% YoY in February vs. a 9.0% increase in January, which was below our forecast (1.7%) and market consensus (2.9%). The main reason for the sharp decrease in output growth between January and February was an unfavourable difference in the number of working days (in January 2017 the number of working days was higher by two days than in 2016, while in February 2017 it was lower by one day than the year before). Seasonally-adjusted industrial production rose by 0.6% MoM in February vs. a 0.2% decrease in January, which signals acceleration in manufacturing activity in February.

Especially noteworthy in the structure of the February industrial production is a relatively high, against the backdrop of other categories, production growth in branches with a significant share of exports in the sales of products, trade goods and materials: "other transport equipment” (32.9% YoY), "motor vehicles, semi-trailers and trailers” (5.0%), "metals” (4.9%), "metal products” (3.8%), and "machinery and equipment” (2.7%). These data are in line with our scenario, in which the recovery in the global trade will boost demand for Polish exports and increase manufacturing activity in 2017. This tendency is confirmed by PMI business survey results (see MACROpulse of 1/3/2017).

Bad weather (temporarily) stopped recovery in construction

According to GUS data, the construction-and-assembly production dropped by 5.4% YoY in February vs. a 2.0% YoY increase in January. The decline in the annual production growth was due to the above-mentioned difference in the number of working days and unfavourable weather conditions in February. According to GUS, seasonally-adjusted (net) percentage of enterprises faced by a barrier in the form of unfavourable weather conditions rose in February to the highest level since June 2013. We expect the construction-and-assembly production growth to increase in subsequent moths due to the forecasted by us higher absorption of EU funds, significant increase in public outlays on infrastructure in 2017, and recovery in residential construction (see MACROmap of 13/2/2017 and 6/3/2017). Our scenario is supported by the increase in the seasonally-adjusted indicator recorded in February for current portfolio of orders in construction to the highest level since June 2011.

Sales data signal an upside risk to consumption forecast

In accordance with the GUS data released today, retail sales in enterprises employing more than 9 people rose in current prices by 7.3% YoY in February vs. 11.4% in January, which was below our forecast (8.5%) and the market consensus (8.6%). The sales in constant prices rose by 5.2% YoY in February vs. 9.6% in January. The slowdown of sales growth in February was wide ranging which shows that it was mainly caused by unfavourable calendar effects. Lower annual sales growth in February was mostly due to a decline in sales growth in the category "motor vehicles, motorcycles, parts" (from 13.9% YoY down to 5.2% in February), "solid, liquid and gaseous fuels” (from 17.2% down to 8.5%), "other” (from 8.8% to 1.3%), and "food, beverages, and tobacco products” (from 2.8% to 0.7%). Taking into account the improving situation in the labour market, the expected by us stabilization of inflation, and the calendar effects, we believe that sales dynamics in constant prices will run at ca. 7% in March.

The so-far-published data on retail sales, industrial production, and construction-and-assembly production between January and February 2017 support our forecast of GDP growth in Q1 2017 (up to 2.8% YoY in vs. 2.7% in Q4) and signal a slight upside risk to our forecast of private consumption (down to 3.6% YoY vs. 4.2% YoY in Q4). In our view, the aggregate impact of today's data is slightly negative for PLN and bond yields.

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