Consumption boom continues despite high inflation

In accordance with the GUS data published today, nominal retail sales dynamics reported by businesses having more than 9 employees increased to 20.0% YoY in January 2022 comparing to 16.9% in December 2021, running close to the market consensus (20.2%) and much above our forecast (16.1%). Retail sales in constant prices grew by 10.7% YoY in January vs. 8.0% in December. Seasonally-adjusted retail sales in constant prices increased by 3.6% MoM in January, thus compensating in full for the 3.4% drop seen in December.

The significant increase in the annual dynamics of sales in constant prices in January took place in spite of the statistical effect of an unfavourable difference in the number of business days (in January 2022, the number of those days was the same as in 2021, while in December 2021 there was one day more comparing to December 2020) and despite the continuing deterioration of all components of the current and leading consumer sentiment indices except for “current major purchases”. Furthermore, in our opinion, the last year’s low base effect caused by the closing of shopping malls in January 2021 did not support the annual sales dynamics in any significant manner. It is also worth noting that the annual dynamics of sales in constant prices in January exceeded more than four times the real wage fund dynamics in the enterprise sector (2.6% YoY). In our opinion, the trends described above suggest that forced savings accumulated in the pandemic period continue to be a significant source of financing households’ expenses, and the negative impact of deterioration of consumer sentiments on consumption (mainly in relation to a historically-high inflation level) is, for the time being, limited.

Construction and assembly production beats pandemic

Data on construction and assembly production has come as a huge surprise, with construction and assembly production increasing by 20.8% YoY in January 2022 comparing to a 3.2% growth in December 2021, and running markedly above the market consensus (4.6%) and our forecast (4.0%). The strong acceleration of production growth took place despite the statistical effect of the unfavourable difference in the number of business days mentioned above. Seasonally-adjusted construction and assembly production increased by 19.0% MoM in January, which represented the highest monthly growth in data history. The growth seen in January was strong enough for production to increase, for the first time, beyond the level seen in February 2020, which was the last month in which the activity in the construction sector was not materially affected by the pandemic. Weather conditions, which were better than the year before, may have contributed to the strong production growth in January, although seasonally-adjusted data on business climate in the construction sector suggested that the activity barrier caused by bad weather was growing stronger.

The structure of data on construction and assembly production suggests that the strong acceleration in the production growth in January was mainly caused by sales in the “construction of buildings” category (39.0% YoY vs. 1.7% in December), where the growth was much stronger compared to that seen in the remaining two categories (“civil engineering works” with an increase from 2.3% YoY to 7.6% and “specialised construction activities” with an increase from 6.6% YoY to 14.7%). Such a structure of production growth indicates that it was private investments that were the chief production driver in January, while the recovery in public investments, which is closely related to EU funds transfers, is still limited.

We expect the recovery in the construction sector activity to continue in the months to come. This is suggested by the GUS business survey data depicting the current portfolio of orders in the construction sector. The said index followed an upward trend until December 2021, reaching its highest value since March 2020, and then fell slightly in January 2022. Consequently, in the quarters to come, the delivery of orders placed during the period of their significant growth in numbers will still be in progress. However, it is worth emphasising the volatility that is characteristic of construction and assembly production data, and that it will only be possible to fully assess the scale of recovery in the construction sector when the data for February is published.

Upside risk for GDP growth in Q1 is growing stronger

Today’s data on retail sales and construction and assembly production combined with last week’s data on labour market and industrial production in January is indicative of a significant upside risk for our forecast, in which the Polish GDP in Q1 2022 will increase by 4.4% YoY in Q1 2022. Our new macroeconomic scenario that factors in the data on the economic growth structure in Q4 2021 will be published on 7 March 2022.

In our opinion, the data on retail sales and construction-assembly production are positive for the PLN and the yields on Polish bonds.

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