Calendar effects boosted the construction-assembly production dynamics
According to GUS data, the construction-assembly production dynamics rose to 7.6% YoY in September vs. 2.7% in August, running above our forecast (6.5%) and the market consensus (6.6%). The increase in the annual dynamics of the construction-assembly production in September compared to August resulted mainly from the statistical effect in the form of a favourable difference in the number of working days (in August 2019 the number of working days was 1 day lower from 2018 while in September 2019 it was higher by 1 day than the year before). Seasonally-adjusted construction-assembly production increased by 0.3% MoM in September.
Business surveys in line with the scenario of soft landing in construction
We maintain 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 weak 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).
The business survey results published in recent weeks strongly support our scenario of “soft landing” in the construction sector. According to a quarterly business survey by the NBP (“Quick Monitoring”), Q3 2019 was the second consecutive quarter in which the annual forecasts of economic situation in construction have improved while such outlook for other segments (manufacturing, trade and other services) continue to show a visible downward trend. This result is in line with the signaled in this survey favourable investment prospects for public sector companies, reflected by a high indicator of future investments (in Q4 they will be started by 41% of the surveyed public companies – the highest percentage in ten years), and the recorded for a second time in a row visible increase in the quarterly indicator of planned investment (OPTIN) in public companies. In addition, the data published by GUS point to the halt of the downward tendency recorded in Q3 for the forecasts of domestic orders portfolio in construction and for the annual dynamics of the number of dwellings in which construction has begun.
Upside risk to the forecast of GDP for 2019
The data on industrial production released last week (see MACROpulse of 18/10/2019), coupled with today's data on construction-assembly production, are slightly positive for our forecast of GDP in Q3 (4.3% YoY). The aforementioned improvement of business climate assessment in construction also signals a slight upside risk to the GDP dynamics forecast for Q4 (4.0% YoY) and for the whole 2019 (4.4%). A fuller analysis of the risks to our forecast of GDP growth in Q4, including the assessment of exports outlook, will be possible after the publication of data on business climate in the Eurozone (PMI) scheduled for Thursday.
Data on the construction-assembly production in September are slightly positive for PLN and bond yields.