Sharp slowdown in retail sales growth
According to GUS data released today, nominal retail sales reported by businesses having more than 9 employees grew by 23.6% YoY in May compared to 33.4% in April, which is below our forecast (30.2%) and slightly above market consensus (23.3%). Retail sales in constant prices grew by 8.2% YoY in May compared to 19.0% in April. Seasonally-adjusted retail sales in constant prices grew by 0.6% MoM in May.
Base effects and soaring inflation weaken growth in consumer demand
The main factor behind the sharp slowdown in sales growth between April and May was the fading of last year’s low base effects, as shopping malls and large furniture and home improvement stores were closed in April 2021 due to COVID-19 restrictions. This translated into a sharp slowdown in retail sales growth in the following categories: 'textiles, clothing, footwear’ (17.7% YoY in May vs. 121.4% in April), ‘furniture, consumer electronics, household appliances’ (-4.0% vs. 27.9%), and ‘other sale in specialized stores’ (-2.8% vs. 38.2%). Retail sales growth in May was also slowed by a drop in real wages in the business sector being a result of a rise in inflation and a slowdown in pay growth (see MACROpulse of 21/06/2022). We believe that retail sales growth continues to be positively affected by increased demand due to Ukrainian refugees coming to Poland, which is reflected in stronger sales growth in the ‘food, beverages, and tobacco’ category (growth in sales in constant prices in May of 10.5% YoY compared to six month’s average of 5.6%). However, we maintain our assessment to the effect that with Ukrainian refugees going back home and a drop in demand for one-off goods (clothing, footwear, furniture, brown and white goods), that effect is going to weaken in the coming months. In the coming quarters high inflation (with a local peak of 15.6% in July and a drop below 13% as late as March 2023) will remain a negative factor for retail sales as it reduces the purchasing power of households. This is reflected in the low level of consumer sentiment index. Despite the very good situation in the labour market, the Current Consumer Confidence Index published by the GUS was at a lower level in May than in April 2020, i.e. during the first lockdown.
Slowdown in new private investment
In accordance with the data published by the GUS, the construction-assembly production increased by 13.0% YoY in May comparing to a 9.3% in April, running markedly below the market consensus (8.7%) and our forecast (11.0%). Seasonally-adjusted construction-assembly production increased in May by 2.4% MoM. Consequently, it was at a slightly higher level (by 0.1%) than in February 2020, a month in which the pandemic had no significant impact on construction activity yet. The main reason for the increase in the annual growth rate of construction-assembly production between April and May was the statistical effect of the favourable difference in the number of working days (in April the number was one day less than in 2021, while in May it was two days more than a year ago). As far as the production structure is concerned, it is worth noting the continued low growth of sales in the ‘civil engineering’ category (3.9% YoY in May vs. 1.4% in April), which is related to the limited investment activity of the public sector. Low sales growth was also recorded in the ‘specialized construction activities’ (3.3% vs. 6.6%) which, we believe, is mainly due to the slowdown in new business and residential construction. On the other hand, the high sales growth rate in the ‘construction of buildings’ category (34.7% vs. 20.5%) reflects, in our opinion, the continuation of private construction projects started in the previous quarters, especially residential ones. We continue to expect that the recovery in construction activity in the coming months will be constrained by increasing supply barriers (shortage of skilled workers and strong growth in prices of construction materials) and demand barriers (reduced availability of housing loans and declining cash demand for housing associated with the uncertainty surrounding the war in Ukraine). What supports such an assessment is the GUS’s seasonally adjusted business sentiment index reflecting the current domestic construction order book, which – in May - was at its lowest level since April 2021.
’Soft landing’ still as the base scenario
Today’s data on retail sales and construction and assembly production combined with yesterday’s labour market and industrial production data for May (see MACROpulse of 21/06/2022) are consistent with our expectations of a strong slowdown in Poland's GDP growth in Q2 (to 4.7% YoY from 8.5% in Q1). It confirms that the slowdown in Poland's economic activity growth is gradual, which supports our scenario of a 'soft landing' of the Polish economy in 2022 despite strong economic and geopolitical turbulence related to the war in Ukraine.
We believe that today’s retail sales and construction-assembly production data is neutral for the PLN and the yields on Polish bonds.