Construction-assembly production continues to show a downward trend
According to GUS data, the construction-assembly production dynamics dropped to 2.7% YoY in August vs. 6.6% in July, running above our forecast (0.6%) and slightly below the market consensus (2.8%). The decrease in the annual dynamics of the construction-assembly production in August compared to July resulted mainly from the statistical effect in the form of an unfavourable difference in the number of working days (in July the number of working days was 1 day higher from 2018 while in August 2019 it was lower by 1 day than the year before) as well as the last year’s high base effect. Seasonally-adjusted construction-assembly production increased by 2.0% MoM in August.
Despite a marked increase in the construction-assembly production in monthly terms, today’s data do not alter our view of the short-term outlook for the construction sector. Although the construction activity will remain high in the coming quarters, the annual production dynamics will continue to show a downward trend, mainly due to the ending of the cycle in public investments (including the end of local governments' investment peak), the expected by us profile of EU funds absorption within the current programming period, and the disturbances that limit the production growth in entities dealing in the construction of civil engineering facilities and are related to a sharp increase in the costs of implementing public investments in the transport infrastructure (roads and railway). Consequently, we expect that the annual growth in construction-assembly production in Q3 2019 will reach the lowest level since Q1 2017. The expected by us slower growth of the construction activity will be conducive to lower production dynamics in the branches of manufacturing supplying the construction companies.
Downside risk to the forecast of GDP for 2019
The data on industrial production released last week (see MACROpulse of 19/9/2019), coupled with today's data on construction-assembly production, are neutral for our forecast of GDP in Q3 (4.3% YoY). However, today’s reading of business sentiment (PMI) in Germany, suggesting the weakening of activity in German manufacturing and thus the deterioration of the outlook for Polish exports in Q4 2019 (we will discuss these data at greater length in the next Macromap), indicates a downside risk to the GDP forecast for Q4 (4.0% YoY) and 2019 (4.4%). This is in line with our scenario, in which one of the factors behind the slowdown of economic growth in 2019 will be a decrease in the dynamics of exports in H2 2019 (see MACROmap of 9/9/2019).
Data on construction-assembly production in August are neutral for PLN and bond yields.