Construction (relatively) resilient to COVID-19

According to GUS data, the construction-assembly production increased by 3.7% YoY in March vs. a 5.6% increase in February, running clearly above the market consensus (0.8%) and below our forecast (6.3%). Seasonally-adjusted construction-assembly production decreased by 3.6% MoM in March.

As we expected, the COVID-19 epidemic and the government-imposed restrictions had a smaller negative impact on construction than on other sectors of the economy. Due to the specific nature of operations, the epidemic did not enforce substantial changes in the so-far functioning of companies. In addition, the good weather in March has also contributed to the increase in the construction-assembly production. This view is supported by GUS survey results, in which the percentage of companies pointing to weather conditions as a barrier to operations in March was very low.

Eventually, construction will also be negatively affected

Despite the small scale of the slowdown of the construction-assembly production in March, we expect that the situation in construction will substantially deteriorate in a few months’ time. This assessment of the outlook is supported by the April results of the GUS business surveys for construction. They signal a significantly sharper decrease in the indicators concerning expectations than in the case of the assessment of the current situation. We believe that, amid the epidemic, the companies will be reluctant to start new investment projects but the construction of the existing establishments will be completed. At the same time we expect a marked decrease in the gross fixed capital formation of the general government units which will be looking for savings in the conditions of the difficult financial situation caused by the COVID-19 epidemic. We believe that the coming quarters will also see lower investment of households (flats purchased for investment purposes and for own needs). The above factors will be conducive to lower dynamics of construction-assembly production (see MACROmap of 14/4/2020). The construction-assembly production will be stabilized by public investments funded at central level, which will distinguish the construction activities against the backdrop of other sectors.

Coupled with data on retail sales and industrial production, the March data on construction-assembly production signal a downside risk to our forecast of GDP growth in Q1 (0.1% YoY) and in the whole 2020 (-3.8%)

Today’s data are slightly positive for PLN and yields on Polish bonds.

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