Retail sales growth supported by low base effects

In accordance with the GUS data published today, nominal retail sales reported by businesses having more than 9 employees went up by 14.4% YoY in October comparing to a 11.1% growth in September, running above the market consensus (12.4%) and our forecast (12.6%). Retail sales in constant prices grew by 6.9% YoY in October vs. 5.1% in September. Continued strong price increases acted as a factor limiting the increase in real retail sales growth. Retail sales deflator went up to 7.0% YoY in October vs. 5.7% in September, reaching the highest level in the recorded history. Seasonally-adjusted retail sales in constant prices grew by 1.2% MoM in October, reaching a level 4.0% higher than in February 2020, which was the last month in which sales were not materially affected by the COVID-19 pandemic.

Rising inflation has not curbed household spending

October was another month to see the retail sales growth boosted by low base effects connected with the negative impact of the second wave of the pandemic on the economic activity in autumn 2020. This effect (positive for sales growth rate) will persist in the months to come. This is because most of the months between September 2020 and April 2021 saw a decline in seasonally-adjusted monthly production (see MACROpulse of 21/10/2021). The significant increase in retail sales in constant prices recorded in October comes as a big surprise, however, in light of the further marked deterioration in consumer sentiment observed in November linked to the strong rise in inflation (see MACROpulse of 19/11/2021).

Very good construction and assembly production data

In accordance with the data published by the GUS, the construction and assembly production increased by 4.2% YoY in October comparing to a 4.3% growth in September, running clearly above the market consensus (3.3%) and our forecast (2.0%). Construction and assembly production growth was largely driven down by the statistical effect of an unfavourable difference in the number of working days between September and October (in October 2021, there was one day less than in October 2020, while in September 2021, the number of working days was the same as in the previous year); the effect of the high base from a year ago was another factor. Despite the above-mentioned adverse statistical effects, the decline in the dynamics of construction and assembly production between September and October was marginal, indicating a continuing recovery in construction. This assessment is supported by data according to which seasonally adjusted construction and assembly production increased by 2.6% MoM in October (the highest monthly increase since May 2021). However, we estimate that the level of construction and assembly production in October was still 7.2% lower than before the outbreak of the pandemic (i.e. February 2020).

Further symptoms of recovery in the construction sector

As regards the data structure, particularly noteworthy is the continuing double-digit growth in construction and assembly production dynamics in the “specialised construction activities” category including site preparation works (12.7% YoY in October vs. 21.7% in September). It is also consistent with the GUS data published today, according to which investment outlays of 50+ businesses on buildings and structures in the period from Q1 to Q3 increased in real terms by 3.0% YoY, compared to a 3.4% decrease in Q1-Q2 and an 8.5% increase in total investment outlays in the first three quarters of 2021 (a 7.9% YoY increase in the first two quarters of 2021). This data supports our scenario in which we will see continued recovery in the construction sector in the quarters to come. However, the developments in public investments due to the approval of the National Recovery Plan still being postponed by the European Commission remain a significant risk factor for our scenario.

Upside risk to our Q4 GDP forecast

Today’s data on retail sales and construction and assembly production combined with yesterday’s data on industrial production (see MACROpulse of 22/11/2021) carry a upside risk for our forecast, in which the Polish GDP will increase by 4.8% YoY in Q4 2021 vs. an 5.1% increase in Q3. At the same time, the data is slightly positive for the PLN and Polish bond yields.

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