A strong decline in retail sales
In accordance with the GUS data published today, nominal retail sales dynamics reported by businesses having more than 9 employees decreased to 10.8% YoY in February comparing to 15.1% in January, running below market consensus (15.0%) and our forecast (14.2%). Retail sales in constant prices fell by 5.0% YoY in February vs a 0.1% growth in January (an upward revision from -0.3%), which counts as the strongest drop since January 2021, when the annual sales dynamics was curbed by high base effects and COVID-19 pandemic-related restrictions (see MACROpulse of 19/02/2021). Seasonally-adjusted retail sales in constant prices decreased by 4.1% MoM in February. The fact that the drop was so strong comes as a huge surprise. In our opinion, it makes room for a retail sales rebound in the subsequent month due to a low base.
Consumers’ weakening purchasing power exerting an increasing impact on retail sales
Weaker dynamics of retail sales in constant prices in February was reported in as many as 7 out of 8 categories set in GUS reports. Particularly noteworthy are the sales decline in the “furniture, electronic goods and household appliances” category (-10.3% YoY in February vs. 1.4% in January), which is the strongest one to have been seen since April 2020, i.e. since the first phase of the pandemic, and a slowdown in sales in the “textiles, clothing and footwear” category (9.9% YoY in February vs. 15.8% in January). In our opinion, it is a consequence of households’ decreasing purchasing power as a result of persistent, high inflation. Real retail sales decline was also very strong in the “solid, liquid, and gaseous fuels” category (-26.2% YoY in February vs. -8.4% in January). However, it is worth noting that the fuels sale dynamics was driven down primarily by the last year’s high base effect connected with the panic buying caused by the outbreak of the war in Ukraine (see MACROpulse of 21/03/2022). Real retail sales growth accelerated only in the “motor vehicles, motorcycles, parts” category (7.5% YoY in February vs. -2.5% in January: the highest level since June 2021). Last year’s low base effects and the increasing availability of cars connected with the production recovery observed in the automotive industry in the last couple of quarters are driving the sales up in this category. It is also worth noting that the sales in the “motor vehicles, motorcycles, parts” category are relatively resilient to the decline in the consumers’ purchasing power because the expenses in that category are incurred by wealthier households.
Downside risk for our consumption path
Today’s data on retail sales, which are indicative of a significant decline are consistent with our scenario in which consumption will slow down significantly in H1 2023. However, we believe there is a risk that the consumption decline might be stronger that we have assumed in our forecast (-2.0% YoY in Q1 2023 and -1.0% in Q2 2023 vs. -1.5% in Q4 2022). Still, how much the consumption will actually slow in the end will depend on the activity in the services sector, where we do not expect the decline to be as serious as it was in the case of retail sales.
Construction and assembly production figures better than expected
In accordance with the data published by the GUS, construction and assembly production increased by 6.6% YoY in February comparing to a 2.4% growth in January, running markedly above the market consensus (1.2%) and our forecast (0.2%). Last year’s low base effect was driving the construction and assembly production growth up. It is also worth noting that the construction and assembly production increased significantly despite the statistical effect of an unfavourable difference in the number of working days (in January, the number of working days was two days higher than in 2022, while in February it was the same as a year ago). Seasonally-adjusted construction-assembly production increased in February by 0.8% MoM.
Construction sector’s activity supported by public sector’s investments
Production growth between January and February was driven up by faster growth in the “civil engineering works” (21.5% in February vs. 15.0% in January) and “construction of buildings” (-2.8% vs. -10.7%) categories. We believe that the acceleration of production growth in the “civil engineering works” category is connected to a great extent with the public sector investments, and results from the efforts made by public finances sector entities to make use of and settle the EU funds that were made available to them within EU’s previous multi-annual financial framework (2014-2020) (see MACROmap of 13/02/2023). However, despite production growth acceleration in the “construction of buildings” category, the outlook for that category still is not bright. This conclusion is supported by today’s GUS data, which show that figures continued to fall strongly both in the case of construction permits (-36.0% YoY in February vs. -32.5% in January) and housing starts (-39.4% vs. -19.9%), which is indicative of a strong downturn in the housing construction sector.
Activity in the construction sector will decrease in the months to come
The construction and assembly production data are consistent with our scenario in which strong constraints on the supply (a strong growth in the prices of construction materials) and demand sides (poorer availability of mortgage loans, poorer demand for apartments bought for cash, higher interest rates, and poorer demand for investment loans) will be conducive to a gradual slowdown in activity in the housing and commercial construction sectors in the months to come (with companies reducing their investments in buildings and structures).
We maintain our "soft landing” scenario for the Polish economy
Today’s data on retail sales and construction and assembly production combined with yesterday’s data on industrial production and employment and average wages in the Polish enterprise sector (see MACROpulse of 20/03/2023) are consistent with our “soft landing” scenario for the Polish economy. In that scenario, GDP growth in Poland in 2023 will remain positive despite a significant slowdown (1.2% YoY vs. 4.9% in 2022), which nonetheless will not be accompanied by a significant unemployment growth.
In our opinion, today’s data are negative for the PLN and yields on Polish bonds.