The impact of pent-up demand on retail sales is fading

In accordance with the GUS data published today, nominal retail sales reported by businesses having more than 9 employees went up by 8.9% YoY in July comparing to a 13.0% growth in June, running below the market consensus (9.3%) and our forecast (9.1%). Retail sales in constant prices increased by 3.9% YoY in July comparing to an increase of 8.6% in June. Seasonally-adjusted retail sales in constant prices shrank by 1.5% MoM in July, which means that they were just 2.3% higher comparing to February 2020, which was the last month when the sales were not materially affected by the pandemic.

A drop in seasonally-adjusted retail sales between June and July indicates that the positive impact of pent-up demand on the activity in retail trade following the launching of the last stage of economy opening in the second half of May is fading. This trend is consistent with our expectations, which we presented last month (see MACROpulse of 21/07/2021). Even though the base effects make it difficult to assess the trends in individual sales segments precisely, it should be noted that the growth is slowing down in those categories, in which higher expenses financed with surplus (forced) savings could be expected (i.e. “motor vehicles, motorcycles, parts” and “furniture, electronic goods and household appliances”). We believe that the annual sales growth will continue to slow down gradually in the months to come. Our assessment is supported by consumer sentiment survey results published by the GUS, which show that the “current major purchases” indicator for August has fallen to the lowest level since April 2021.

Construction and assembly production growth slowing down again

In accordance with the data published by the GUS, the construction and assembly production increased by 3.3% YoY in July comparing to a 4.4% growth in June, running markedly below the market consensus (7.1%) and our forecast (10.4%). The slowdown in the annual production growth comes as a huge surprise given the last year’s low base effect (in July 2020, seasonally-adjusted production fell by 3.4% MoM). Seasonally-adjusted construction and assembly production decreased in July by 1.3% MoM. This is the second consecutive month with production falling. Consequently, production remains well below the Feb 2020 level (by 8.6%).

Lower infrastructure investments contributed to the slowdown in the annualised construction and assembly production growth most: the dynamics in the “civil engineering works” category fell to -5.9% YoY in July comparing to a 0.4% growth in June. However, as regards the units performing specialised construction activities including site preparation works, we observed a continuous, strong production growth (17.1% YoY vs. 18.3% in June). The growth in the “construction of buildings” category sped up significantly from -0.3% in June to 5.7% YoY in July, indicating that the recovery in the housing construction sector is getting stronger. We maintain our scenario, in which the recovery in the construction sector will continue in the quarters to come, albeit the uncertainty concerning public investments, due to the approval of the National Recovery Plan having been postponed by the European Commission, are a significant risk factor.

Today’s worse-than-expected data on retail sales and construction and assembly production for July are slightly negative for the PLN and the yields on Polish bonds.

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