Polish economy sees August data better than expected
The August data set (industrial production, construction, trade) turned out to be better than forecast, which means an increase in the chances that the economy will avoid a third consecutive year-on-year GDP decline in Q3 2023, ING Bank Slaski economists estimate. At the same time, however, they maintain their forecast for GDP growth of 0.4% y/y for all of 2023.
"We expect that Q3 2023 could be a turning point in the Polish economy. Private consumption is finally lifting, which is expected to drive the recovery. The August data set (industrial production, construction, trade) turned out to be better than our forecasts. Thus, there is a growing chance that the economy will avoid a third consecutive annualized decline in GDP in Q3 2023. For the whole year, however, growth will be low (around 0.4%)," according to the bank's analysts wrote in a commentary on data from the Central Statistical Office (GUS) on retail sales and the performance of the construction sector.
The GUS reported today that retail sales (at constant prices) fell 2.7% y/y in August 2023.
"Retail sales of goods fell 2.7% y/y in August (ING: -4.1%; consensus: -3.8%), following a 4% decline in July. The reading was clearly better than our and the market's expectations. A shallower sales decline than the month before was related to daily necessities. The scale of the decline in food and fuel sales was clearly lower than in July. The mentioned categories account for about 40% of total retail sales. We continue to see double-digit declines in purchases of durable goods (furniture, consumer electronics, household appliances). Deseasonalized data indicate a 1.3% m/m increase in sales. The trade data also suggest a further decline in upward pressure on commodity prices, although the pace of disinflation is slowing. The implied retail sales deflator declined to 6% y/y in August from 6.4% y/y in July," ING wrote in a commentary.
According to the bank's economists, the expected further decline in inflation will support a steady recovery in real household disposable income.
"Especially since wages will continue to grow at a double-digit pace in the medium term, in our view. We have also seen an improvement in consumer sentiment since the beginning of the year. The year-over-year decline in retail sales is further attributable to the migration of refugees from Ukraine, who bumped up sales in 2022, generating a high baseline. The decline in private consumption in Q3 2023 should be noticeably smaller than in Q2 2023 (-2.7% y/y), and a more pronounced rebound will be seen in Q4 2023," they wrote.
The GUS also reported today that construction-assembly production (realized by construction companies with more than 9 employees) rose by 3.5% y/y in August this year.
"In August, construction-assembly production rose 3.5% y/y, following a 1.1% y/y increase in July. The result was significantly better than the consensus expectation of 1.1% growth and our forecast of 0.3%. The stronger growth in total construction was mainly due to a shallower-than-we-expected decline in the building construction category (-5% y/y after -7.8% in July). Strong double-digit growth (11.8% y/y) in civil engineering construction continued. In this area of the construction sector, Poland is benefiting from the finalization of projects using the 'old' EU budget, which we can use until the end of this year. Specialized works saw a 0.9% y/y increase after a 3.4% decline in July," ING commented.
The GUS reported that the number of housing permits fell 7.5% y/y in August, the number of housing units with construction starts rose 39.4% y/y, while the number of units completed fell 2% y/y.
"The improvement in the performance of the construction sector in August was accompanied by an impressive increase in the number of apartments whose construction began (up 39.4% y/y), however, with declines in the number of apartments completed (-2% y/y) and a decline in the number of apartments for which permits were issued (-7.5% y/y). On a cumulative year-to-date basis, however, clear declines were recorded in all three categories, with -19.5% y/y, -0.2% and -29.8%, respectively. August was a month of recovery in the construction industry. This can be linked to the launch of the government's '2% Safe Loan' program, which likely previously held back some projects. Also, expectations of NBP interest rate cuts, which materialized even on a larger-than-expected scale in September, were supportive of the construction sector boom. Demand for credit and the creditworthiness of potential borrowers are growing. As a result, the construction industry expects increased demand for housing," the economists wrote.
They also noted that, as expected, infrastructure investment continued to perform well in August. According to them, this category will remain the main driver of construction this year. Warehousing and logistics work should also continue to make a positive contribution.
The GUS reported at the end of August that Gross Domestic Product (not seasonally adjusted, constant average prices of the previous year) fell by 0.6% y/y in Q2 2023, compared to a 0.3% y/y decline in the previous quarter.