Statistical effects reduced industrial production growth

In accordance with GUS data, dynamics of sold production of industry in enterprises employing more than 9 people dropped to 9.1% YoY in November vs. 12.3% in October, which was above the market consensus (9.0%) and our forecast (7.8%). Seasonally-adjusted industrial production decreased by 0.5% MoM in November.

The main reason for the decrease in industrial production dynamics in November were the high base effects from the year before (in November 2016 seasonally-adjusted production increased by 2.0% MoM). In addition, conducive to slower production growth rate between October and November was an unfavourable difference in the number of working days. In October 2017 the number of working days was higher by 1 day than in 2016 while in November 2017, including an extra free day granted by employers due to the Independence Day falling on a Saturday, it was the same as the year before. The error of our forecast of industrial production growth was most likely due to the fact that some employers will "give back" this extra free day in December instead of November which has limited the negative calendar effects on the production growth rate.

Like in previous months, we saw a relatively fast increase in output both in segments with a considerable share of exports in sales ("machinery and equipment” (23.5% YoY in November), "motor vehicles, trailers and semi-trailers” (17.4%), ”furniture" (10.7%), and "electrical equipment” (10.3%), and in segments connected with the construction sector ("metal products” (17.4% YoY), "rubber and plastic products” (11.9%), "metals” (10.2%), and ”other non-metallic mineral products” (9.4%).

Month-on-month construction-assembly production

According to GUS data, the construction-assembly production growth dropped to 19.8% YoY in November vs. 20.3% in October. Its only slight decrease is a positive surprise in the light of the high base effect from the year before (in November 2016 the construction-assembly production rose by 6.4% MoM). Seasonally-adjusted construction-assembly production rose month-on-month by 3.2%. This has been its first MoM increase after three months of declines. Thus, our scenario (see MACROpulse of 20/11/2017), in which the decrease in the month-on-month seasonally-adjusted construction-assembly production was temporary, has materialized.

The small scale of the slowdown in the construction-assembly production was most likely due to the strong rebound in the investments of local governments dictated by the necessity to meet the budgets of financial expenditures before the approaching end of the year. We believe that in the coming months the production will stay within an upward trend, boosted by growing absorption of EU funds, higher public outlays on infrastructure and continuing recovery in residential construction. Taking into account the results of our analyses presented in MACROmaps between 23/10/2017 and 13/11/2017, we expect that the recovery in construction will peak at the turn of 2018 and 2019.

Reduction of retirement age boosted sales

In accordance with the GUS data released today, nominal dynamics of retail sales in enterprises employing more than 9 people increased to 10.2% YoY in November vs. 8.0% in October, running above our forecast (6.5%) and the market consensus (7.5%). Real retail sales growth rose to 8.8% YoY in November vs. 7.1% in October. In our view, the acceleration in sales growth may have been partly due to higher spending from the severance pay obtained by people who became entitled to retire following the reduction of the retirement age. It may also have been caused by earlier Christmas shopping using the savings of funds obtained under the 500+ program. Our view is supported by the structure of retail sales – higher dynamics were recorded i.a. in such categories as "textiles, clothing, footwear” and "furniture, audio-video and household equipment”. Today's retail sales reading signals a slight upside risk to our forecast in which private consumption growth will decrease to 4.3% in Q4 vs. 4.8% YoY in Q3. At the same time, the November data on industrial production, construction-assembly production, and retail sales pose an upside risk to our forecast of GDP growth rate in Q4 (4.8% YoY vs. 4.9% in Q3).

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

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