Construction and assembly production growth rate shrank to -9.6% YoY in October, down from -9.0% in September, printing well below the market consensus (-6.9%) and our forecast (-5.0%). The growth rate of seasonally unadjusted construction and assembly production dropped despite the statistical effect of a favourable difference in the number of working days between September and October (in September 2024, the number of working days was the same as in the corresponding month of the previous year, while in October 2024 there was one day more than in October 2023). Seasonally-adjusted construction and assembly production shrank by 2.7% MoM in October, continuing its downward trend started at the beginning of the year. At the same time, it reached its lowest level since 2021.
Housing construction to the rescue
The annual growth rate of construction and assembly production decreased in 2 out of 3 reported categories: in “specialised construction activities” (-10.4% YoY in October vs. -7.9% in September) and “civil engineering works” (-10.2% vs. -8.9%). However, in the “construction of buildings” category, the rate of decline of construction and assembly production dropped from -10.1% to -7.9%. We maintain our view that that housing construction will continue to stimulate activity in the construction sector in the coming months, the current activity being strongly hampered by the reduced absorption of EU funds. Supporting this assessment are 3-month moving averages for building permits and housing starts, which have been trending upwards in recent months. We expect that in the coming quarters construction activity will be increasingly boosted by projects delivered as part of the National Recovery Plan. This is reflected in business sentiment survey results in the construction sector indicating a sustained improvement in the surveyed companies’ assessments of future production and order books.
Slight downside risk for our Q4 GDP growth forecast
Today’s data on construction and assembly production pose a downside risk to our forecast assuming moderate GDP growth in Q4 (2.5% YoY vs. 2.7% in Q3). However, a more comprehensive assessment of this risk will only be possible after analysing the remaining monthly data from the Polish economy for October, particularly industrial production and retail sales figures. At the same time, these results are slightly negative for the PLN and yields on Polish bonds.
