Further growth in retail sales
In accordance with the GUS data published today, nominal retail sales growth reported by businesses having more than 9 employees, at 2.1% YoY, remained unchanged in July comparing to June, running below the market consensus (2.5%) and above our forecast (1.2%). Seasonally-adjusted retail sales at constant prices increased by 1.3% MoM in July, growing for the second month in a row.
Retail sales at constant prices grew to -4.0% YoY in July compared to -4.7% in June. On the one hand, the real growth of retail sales between June and July was affected by the cessation of the low base effect from a year ago, which boosted sales growth in June (see MACROpulse of 21/07/2023), as well as the renewed decline in the wage fund recorded in July (see MACROpulse of 21/08/2023). On the other hand, improving consumer sentiment had the opposite effect: in July, there was a significant increase in consumer sentiment indicators showing the propensity to make major purchases for both current spending (the highest level since February 2022) and purchases expected over a one-year horizon (the highest since December 2021).
As in June, the YoY decline in real retail sales was broad-based in July and was recorded in all categories reported by the GUS with the exception of the 'motor vehicles, motorbikes and parts' category (the increase in sales in this category was indicated by the increase in the number of new cars registered observed in July). However, the rate of decline in sales slowed down compared to June in most of the categories analysed.
Sales data points to a turning point for consumption
Today's data supports our assessment from a month ago, according to which seasonally adjusted retail sales reached a local minimum in Q2 and will increase from Q3 onwards (see MACROpulse of 21/07/2023). The growth in retail sales will, combined with the recovery in the services segment, support a strong increase in consumption growth from -3.7% YoY in Q2 to 0.2% in Q3. YoY consumption growth will be supported by the cessation of last year's high base effect, as well as a further rapid decline in inflation and an associated increase in real wage fund growth. Improving consumer sentiment will also be a factor strengthening the recovery of consumer demand in the coming months. New information on consumer sentiment will be provided by the publication of the August GUS consumer confidence survey results scheduled for Thursday.
Construction recovery getting closer
In accordance with the data published by the GUS, the construction-assembly production dropped to 1.1% YoY in July comparing to 1.5% in June, running below the market consensus (+2.5%) and our forecast (+2.0%). The reduction in the construction-assembly production growth between June and July was influenced by the reduction in the categories 'specialised construction works' (-3.4% YoY in July vs. 3.8% in June) and 'construction of buildings' (-7.8% YoY vs. -5.7%), while the opposite effect was exerted by the higher growth in the category 'civil engineering works' (11.8% vs. 5.9%). Seasonally-adjusted total construction-assembly production shrank by 0.4% MoM in July, for the fifth month in a row. However, it is worth noting that the rate of this decline has slowed markedly in recent months.
The GUS business survey results incoming in recent months indicate a gradual improvement in the construction industry. Particularly noteworthy are the indicators for current as well as expected orders, which remain on a clear upward trend. We believe that the 2% Safe Mortgage program will be an important factor to boost housing construction in the coming months. What supports this assessment is the GUS data published today, according to which a strong deceleration in the decline in both building permits (-14.1% YoY in July vs. -40.2% in June) and housing starts (-0.5% vs. -32.8%) was recorded in July. Also, construction activity in the 'civil engineering category' will be supported by efforts made by entities in the public finance sector to use and account for EU funds available under the previous Multiannual Financial Framework 2014-2020. This is consistent with our assessment that we will see a gradual recovery in construction activity in the coming months.
We uphold our ‘soft landing’ scenario
We uphold our 'soft landing’ scenario for the Polish economy according to which the growth of the Polish GDP will decrease markedly in 2023, but it will remain positive and the strong slowdown in economic growth will not be accompanied by a significant increase in unemployment. However, today's retail sales and construction-assembly production data, combined with the industrial production and employment and average wages data in the sector of enterprises published yesterday, signal a slight downside risk to our 2023 economic growth forecast (0.8% vs. 5.1% in 2022).
In our opinion, the July data on retail sales and construction-assembly production is neutral for the PLN and the yields on Polish bonds.
