Retail sales are almost positive now

In accordance with the Polish Central Statistical Office's (GUS) data that have been released today, retail sales in enterprises employing more than 9 people decreased in current prices by 1.9% YoY in June vs. an 8.6% decrease in May, running significantly above the market consensus (-4.0%) and our forecast (-2.5%). The sales dynamics in constant prices rose to -1.3% YoY in June vs. -7.7% in May. The reasons for the sharp increase in retail sales in June were the diminishing concerns of households about the ongoing epidemic, continuing postponed demand effect (increase in the households’ expenditures not made due to the restrictions binding between March and May), increase recorded in June in the wage dynamics amid the slowdown of employment decline in the corporate sector (see MACROpulse of 17/7/2020) as well as a favourable difference in the number of working days (in May 2020 the number of working days was one day lower from 2019 while in June 2020 it was higher by 2 days that the year before).

Postponed demand effect is still important

The postponed demand effect was especially visible in the category “motor vehicles, motorcycles and parts” (increase in sales by 42.4% MoM in June vs. a 46.8% increase in May) and “textiles, clothing and footwear” (27.0% MoM vs. 129.6%). We estimate that the surges in sales in these categories have contributed to an increase in the annual dynamics of total sales by 2.8% percentage points between May and June. It is worth noting however that the June sales in these two categories were nevertheless lower than in the previous year (by 6.4% and 3.7%, respectively). The only category which has recorded a marked increase in sales in June in annual terms was “furniture, audio-video and household equipment” (16.1% YoY vs. 14.4% in May). However, the increase in sales in this category resulted also from the last year’s low base effect, which would suggest caution in interpreting these data as a signal of a marked increase in the households’ demand for durable goods. In sum, the June data on sales point to a gradually abating negative impact of the COVID-19 pandemic on consumer demand. We expect that in July the annual sales dynamics supported by the shifts in consumption resulting from the increase in domestic travel at the expense of foreign tourism and further improvement in consumer sentiment will stand at a positive level.

Data on construction activity as another signal of decrease in private investments

According to GUS data, the construction-assembly production decreased by 2.4% YoY in June vs. a 5.1% decrease in May, running below our forecast (0.0% YoY) and the market consensus (-1.8%). The increase in the annual dynamics of construction-assembly production resulted from the aforementioned working days effect. Seasonally-adjusted construction-assembly production decreased by 2.5% MoM in June, which points to a marked decline in construction activity. The main factor behind the decrease in the construction-assembly production dynamics in June were lower production dynamics among entities dealing in the construction of building (-5.7% YoY vs. -5.3% in May). This is yet another – after the above-mentioned data on investment climate in enterprises – signal of a decline in the investments of the private sector (companies and households), which is in line with our forecast of a decrease in total investments in Q2 by 7.0% YoY. The recorded in June increase in the annual production dynamics in the remaining two categories “construction of civil engineering facilities” and “specialized construction activities” resulted mainly from the favourable working days effect.

A deeper decline in construction activity lies in store

We maintain our scenario in which the situation in construction will significantly deteriorate in Q2 2020. This scenario is supported by a sharp deterioration in the investment climate in enterprises (see MACROmap of 20/7/2020), the fact that GUS business sentiment indicator reflecting the current level of the orders portfolio of construction companies continues to stay at a very low level (significantly lower than during the bottom of the cycle in construction recorded in 2013), expected visible decrease in road investments in 2020, as compared with 2019, and fixed capital formation of local government units as well as marked decrease in residential construction activity (the number of dwellings in which construction has begun decreased by 22.9% YoY in Q2 2020 vs. a 2.5% decrease in Q1 and the number of building permits decreased by 9.5% YoY vs. a 1.0% increase in Q1).

Upside risk to GDP dynamics in Q2

Today’s data on retail sales and construction-assembly production in June are neutral for PLN and bond yields. The data on the economic activity in June that have been released so far pose an upside risk to our forecast of GDP dynamics in Q2 2020 (-10.5% YoY). In the next MACROmap we will present our revised macroeconomic scenario for 2020 and 2021.

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