Retail sales in December still below pre-pandemic levels
In accordance with the Polish Central Statistical Office's (GUS) data released today, retail sales reported by businesses having more than 9 employees and expressed in terms of current prices went down by 0.8% YoY in December vs. -5.3% YoY in November, slightly below the market consensus (-0.7%) and our forecast (-0.6%). The growth rate of sales expressed in terms of fixed prices increased from -5.3% in November to -0.8% YoY in December. Seasonally-adjusted retail sales expressed in terms of fixed prices grew by 2.4% in December last year comparing to November. Despite a clear growth in sales volumes expressed in monthly terms, we assess that seasonally-adjusted sales in December were lower by 2.4% comparing to February 2020, when household expenses were not affected by a strong negative impact of the pandemic yet.
Lifting some of the restrictions introduced in November to reduce the number of new COVID-19 cases, including in particular the opening of stores in shopping malls drove the retail sales growth rate up in December. The removal was reflected in a strong increase in the dynamics of sales expressed as fixed prices in such categories as “textiles, clothing and footwear” (-10.9% YoY vs. -21.9% in November) and “furniture, electronic goods and household appliances” (3.5% YoY vs. -0.6%). As regards these categories, retail sales in December were driven up by significant reductions in the prices of many goods related to the expected closing of certain stores in shopping malls in late December 2020 and January 2021 (the annual decline rate of prices in the “textiles, clothing and footwear” category increased from 3.2% in November to 3.8%). This was reflected in a relatively high share of online sales in the total sales standing at 9.1% in December, above the average for the year 2020 (7.1%) calculated excluding the months in which severe restrictions were in force and households’ mobility was reduced (March, April and November). We expect the January closing of stores in shopping malls to accelerate the decline in annual retail sales.
Surprising growth in the construction sector activity
In line with the data published by the GUS, the construction and assembly production increased by 3.4% YoY in December comparing to a fall by 4.9% in November, standing far above our scenario (-0.6% YoY) and market consensus (-2.2%). A low base effect was the main factor driving the dynamics of construction and assembly production up between November and December (December 2019 saw a relatively strong decline in monthly production). Seasonally-adjusted construction and assembly production increased by 1.9% between November and December 2020. We assess that construction and assembly production in December fell by 13.1% comparing to February 2020.
An increase in the construction and assembly production growth rate in December was recorded in all sections of the construction industry: ‘construction of civil engineering facilities’ (-1.0% YoY vs. -4.5% YoY in November), ‘construction of buildings’ (4.1% vs. -12.0%) and ‘specialised construction’ (12.0% YoY vs. -4.7%). In our view, the surprisingly strong growth in production in these three sections was temporary. A factor contributing to a lower annual production growth rate in January will be the abatement of the base effect mentioned above. Moreover, one can assume, that the ‘year-end effect’, reflected in increased public sector investment spending, contributed to some extent to the strong increase in activity in December. Verification of this hypothesis using January data will, however, be difficult due to the low temperatures recorded in recent days, which, in our view, contributed to a reduction in construction activity. Data on construction and assembly production and its structure indicates continued low activity in the construction industry, which is mainly due to a strong decline in investment by enterprises. We maintain our assessment that the depressed activity in construction will persist until H2 2021, when the recovery in investment by enterprises and the acceleration in public investment will contribute to a marked increase in construction and assembly production. What supports our scenario is the persistently low, compared to the pre-pandemic period, GUS business sentiment indicator showing the domestic orders portfolio of construction companies.
Further data confirms upside risk to GDP growth in Q4 last year
December construction and assembly production data is yet another sign – following the release of much better-than-expected employment and wage data in the enterprise sector yesterday (see MACROpuls of 21/01/2021) – of a significant upside risk to our Q4 GDP forecast (-4.2% YoY). The key to assessing this risk will be the December industrial production data, which will be released next Monday. At the same time, we maintain our forecast for GDP growth in Q1 2021 (-1.0% YoY). This forecast is supported by the government's decision to extend restrictions on i.a. shopping malls, restaurants and tourism until the end of January. This is in line with the ‘creeping lockdown’ scenario in Q1 2021, which was the main assumption of our macroeconomic forecast for 2021 (see MACROmap of 7/12/2020). An important rationale (in addition to the number of new COVID-19 cases and the scale of the health care burden) for maintaining the ‘creeping lockdown’ in Q1 will be to ensure harmonious implementation of the vaccination process in groups at increased risk of severe course of COVID-19.
Better-than-expected construction and assembly production data for December is slightly positive for the PLN and bond yields. In our opinion, the PLN will also be supported by data on December industrial production, which (in line with our forecast) increased by 10.0% YoY vs. the consensus of 8.3%. A significant appreciation of the PLN in the coming weeks is, however, unlikely, due to the NBP's declared readiness to continue currency interventions limiting the scale and pace of PLN’s appreciation (see MACROmap of 18/01/2021).