Retail sales finally in the red
In accordance with the GUS data published today, the nominal retail sales growth rate in the sector of enterprises employing more than 9 employees fell to 15.1% YoY in January, from 15.5% in December, running below the market consensus (19.0%) and our forecast (16.2%). Retail sales in constant prices contracted by 0.3 YoY in January against a growth of 0.2% in December. Adjusted for seasonal factors, retail sales in constant prices expanded by 2.7% MoM in January.
A YoY drop in sales in constant prices was recorded for the first time since February 2021 when retail activity was still suppressed by government restrictions designed to limit the spread of the COVID-19 pandemic. The decline in real sales in January was wide-ranging and was recorded in all but three categories (‘textile, clothing, footwear’, ‘furniture, consumer electronics, household appliances’ and ‘pharmaceuticals, cosmetics, orthopaedic equipment’). We believe that the driver of the decline in sales growth was the weakened consumer demand following from the reduced purchasing power of households’ disposable income amid persistently high inflation. This assessment is supported by the fact that sales declined despite a clear improvement in consumer sentiment recorded in January.
In the data on January retail sales, particularly noteworthy is the sharp rise in sales growth in fixed prices in the ‘furniture, consumer electronics, household appliances’ category (1.4% YoY vs. -10.4% in December). This is particularly noteworthy as since May 2022, sales in this category have been consistently declining on a year-on-year basis. We believe that its increase in January does not signal a reversal of trends but is rather a temporary correction following relatively weak, against the historical background, purchasing activity in this category recorded in December 2022.
Construction and assembly production
According to the GUS data, construction and assembly production rose by 2.4% YoY in January relative to a 0.8% drop in December, a reading well above the market consensus (-3.8%) and our forecast (-11.0%). A statistical effect coming from a favourable difference in the number of working days between December and January (in December 2022, there was one working day less that in 2021, while in January 2023 there were two days more than a year ago) drove construction and assembly production growth up. Adjusted for seasonal factors, construction and assembly production expanded by 7.0% MoM in January, with activity in construction supported by relatively favourable weather conditions in January.
Strong high base effects (in January 2022, construction and assembly production adjusted for seasonal factors grew by 18.9% MoM) render it difficult to make accurate conclusions about trends in construction based on January data. The increase in production growth between December and January was mainly driven by the acceleration in the ‘civil engineering category (15.0% YoY in January vs. 1.4% YoY in December), which is closely tied to public sector investments. We believe that increased activity in this sector is attributable to the efforts of public finance sector entities to use and settle EU funds available under the previous long-term EU financial perspective (2014-2020, see MACROmap of 13/02/2023) in this year. In January, a deepening decline in production in annual terms was observed in the ‘construction of buildings’ category (-10.7% YoY vs. -3.7% YoY in December). This is consistent with our scenario where high supply-side (sharp rise in prices of building materials) and demand-side barriers (reduced availability of mortgage loans, lower cash demand for apartments, increase in interest rates and lower demand for investment loans) in the coming months will be conducive to a gradual decline in activity in residential and commercial construction (lower investments from businesses in buildings and structures).
GDP in annual terms to fall in Q1
Retail sales data in January support our Q1 consumption forecast (-2.0% YoY vs. -1.5% in Q4 2022), and data on construction and assembly production is consistent with our scenario of a slight decrease in total investments in Q1 (-0.5% YoY vs. 5.1% in Q4). We also stand by our Q1 GDP growth forecast (-0.8% YoY vs. 2.0% in Q4). If our Q1 GDP forecast materializes, this will be consistent with our ‘soft landing’ scenario for the Polish economy. In this scenario, GDP growth in Poland in 2023 will remain positive despite a significant slowdown (1.2% YoY vs. 4.9% in 2022) and reduced GDP growth will not be accompanied by a substantial rise in unemployment.
In our opinion, today’s data is neutral for the PLN exchange rate and yields on Polish bonds.