Production in "electricity” category limited output growth

In accordance with GUS data, dynamics of sold production of industry in enterprises employing more than 9 people dropped to 4.3% YoY in September vs. 8.8% in August, which was below the market consensus (5.2%) and our forecast (5.6%). The main reason for the sharp decline in production growth rate between August and September was an unfavourable difference in the number of working days (in August 2017 the number of working days was the same as in 2016 while in September 2017 it was 1 day lower than the year before). Seasonally-adjusted industrial production decreased by 1.2% MoM in September.

Especially noteworthy in the data structure is the lower output growth rate in the category "electricity, gas, steam and air conditioning supply” (from 23.3% YoY in August down to 2.5% in September), which contributed to a decrease in total production dynamics by 1.3 pp in September. It was a correction after the sharp decrease in dynamics recorded in this category in August.

Like in the previous months, we saw a fast increase in production both in segments with a considerable share of exports in sales ("computers, electronic and optical equipment” (12.8% YoY in September), "other transport equipment” (7.4%), "electrical equipment” (6.8%), and furniture (6.7%)) and in segments connected with the construction sector ("metals” (15.6% YoY), "rubber and plastic products” (9.9%)).

The results of business survey (so-called Quick Monitoring by NBP) published this week pointed to a decrease in the level of stocks held by enterprises in Q3. The inventory gap defined as difference between the percentage of companies reporting level of stocks that is too low and the percentage of companies believing their stocks to be excessive has visibly increased in Q3 and was positive for the first time in the survey history (i.e. since 2000). Lower stock buffer of finished goods, given high capacity utilization, points to growing supply constraints in the Polish manufacturing. We believe that these constraints will hamper industrial production growth in the coming months.

Temporary dip in construction production

According to GUS data, the construction-assembly production growth rate dropped to 15.5% YoY in September vs. 23.5% in August. Conducive to its decrease were the above-mentioned unfavourable calendar effects. Seasonally-adjusted construction production declined by 0.3% MoM.

We believe that the decrease in the month-on-month seasonally-adjusted construction-assembly production is temporary and in the coming months production will again show an upward trend, boosted by growing absorption of EU funds, higher public outlays on infrastructure and continuing recovery in residential construction. Our view is supported by further increase in the GUS business sentiment indicator concerning the size of order-book in construction. In September it reached the highest level since 2008.

In the whole Q3, the average dynamics of industrial production rose to 6.3% vs. 4.3% in Q2, while construction-assembly production dynamics rose to 19.4% vs. 8.4%. Today's data pose an upside risk to our scenario of GDP growth rate in Q3 2017 (up to 4.3% YoY vs. 3.9% YoY in Q2).

Poor weather supported retail sales

In accordance with the GUS data released today, nominal dynamics of retail sales in enterprises employing more than 9 people increased to 8.6% YoY in September vs. 7.6% in August, running above our forecast equal to the market consensus (7.9%). Real retail sales growth rose to 7.5% YoY in September vs. 6.9% in August. The acceleration in sales growth was mostly due to a seasonal increase in purchases of clothing and footwear from the autumn and winter collection, which occurred earlier this year due to exceptionally cold September (sales dynamics in constant prices in this category rose to 32.3% YoY from 17.3% in August). We expect that in the coming months the annual sales dynamics will gradually decrease due to last year's high base effect related to the disbursement of funds under the Family 500+ scheme. Lowering of the retirement age will also be positive for retail sales growth in Q4 (see MACROmap from 11/09/2017).

In the whole Q3, retail sales in constant prices rose by 7.1% vs. a 6.7% increase in Q2, which poses un upside risk to our forecast, in which private consumption growth rate dropped to 4.2% YoY in Q3 vs. 4.9% in Q2 2017.

The data released today are slightly negative for PLN and yields on Polish bonds, we believe.

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