Further drop in retail sales

In accordance with the GUS data released today, nominal retail sales growth reported by businesses having more than 9 employees dropped to 18.4% YoY in July from 19.9% in June, running slightly above market consensus (18.3%) and below our forecast (20.3%). Retail sales at constant prices rose by 2.0% YoY in July compared to a rise of 3.2% in June. Seasonally-adjusted retail sales at constant prices shrank by 0.1% MoM in July compared to a drop of 2.8% in June; thus retail sales dropped for the second month in a row.

Weakening consumer sentiment negative for retail sales

Slowdown in retail sales at constant prices was seen in the majority of industries, with the biggest drops seen in the following categories: ‘motor vehicles, motorcycles, parts’ (-15.1% YoY in July vs. -10.5% in June), ‘food, beverages, and tobacco‘ (5.4% vs. 7.9%), and ‘solid, liquid, and gaseous fuels’ (-13.8% vs. -12.6%). Sales also continued to fall in ‘furniture, radio, TV and household appliances’ (-5.3% vs. -7.0%) and ‘other retail sales in non-specialized stores’ (-1.9% vs. -2.3%). We believe, this reflects a deterioration in consumer sentiment due to inflation adversely affecting disposable incomes of households (see MACROpulse of 12/08/2022), and a deepening economic slowdown (see MACROpulse of 17/08/2022). This assessment is supported by GUS consumer sentiment survey results released last week, which show that the current consumer confidence index (BWUK) hit its all-time low in August. We believe that in the coming months, poor consumer sentiment will remain the main factor limiting retail sales growth.

Construction-assembly production growth below expectations

In accordance with the data published by the GUS, the construction-assembly production increased by 4.2% YoY in July comparing to 5.9% in June, running below the market consensus (6.1%) and our forecast (5.5%). A statistical effect coming from an unfavourable difference in the number of working days between June and July (in June, the number of working days was the same as in 2021 while in July it was one day lower than a year ago) drove the construction-assembly production growth down. Seasonally-adjusted construction-assembly production decreased in July by 0.5% MoM. Consequently, it was at a lower level (by 4.7%) than in February 2020, a month in which the pandemic had no significant impact on construction activity yet. The continuation of the decline in construction-assembly production had been signalled previously by deteriorating business survey results in the construction industry, in particular the shrinking current order book reflected in lower capacity utilization.

Slowdown in the construction industry continues

As far as the construction-assembly production structure is concerned, it is worth noting the decline in the ‘civil engineering’ category (2.2% YoY in July vs. 5.0% in June), which is related to the limited investment activity of the public sector. Low growth was also recorded in the ‘specialized construction activities’ (-1.4% vs. 3.1%) which, we believe, is mainly due to the slowdown in new business and residential construction. There was also a further deceleration in the production growth rate in the ‘construction of buildings’ category (11.7% vs. 15.2%), reflecting, in our view, the expiration of the effect of private investment started in previous quarters, particularly residential construction projects. We maintain our assessment that the activity in the construction sector will be curbed in the coming months by the growing barriers on the supply (lack of qualified workforce and a strong increase in the prices of construction materials) and demand side (poorer availability of mortgage loans and poorer demand for apartments bought for cash in relation due to the uncertainty caused by the war in Ukraine).

We maintain our scenario of technical recession in Poland

Today’s retail sales and construction-assembly production data combined with Friday’s labour market and industrial production data (see MACROpulse of 19/08/2022) does not change our scenario of technical recession in Poland in Q2 and Q3 2022, i.e. a decline in seasonally-adjusted GDP that lasts at least two consecutive quarters (see MACROpulse of 17/08/2022). At the same time, we believe that today’s data is neutral for the PLN and yields on Polish bonds.

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