A dreadful August for the Polish economy

In August, retail sales rose 2.6% y/y, slightly below consensus and our forecast (3.6 and 3.2% y/y, respectively). August itself doesn't look dramatic - it managed to make up most (a seasonally adjusted +1.9% m/m) of the previous month's decline (-2.9% m/m). Our overall conclusion on retail sales also remains unchanged - there is no consumer boom in Poland and all measures of consumer spending show a relatively slow recovery. Moreover, consumer spending is now following a trajectory that is permanently lower than it was before 2022. Coupled with real income growth, this suggests that the propensity to save remains elevated, in line with our projections. How long will it remain elevated? Probably as long as interest rates remain high.  

Retail sales and household consumption (Dec’19 / Q4’19 = 100%)

Source: Statistics Poland, Pekao Research

The details of the reading show no breakthrough. The biggest fluctuation was in auto sales (decelerating from 30.1 to 15.7% y/y), and if its magnitude had been smaller, forecasts would have been on point. In other categories, we see a continuation of the trends we have known for many, many months. In particular, sales of furniture and household appliances continue to look bad (the worst sequence in the history of the series), falling 5.3% y/y in August, for the 19th (!) in a row and the 29th time since the beginning of 2022. In the next couple of months, the growth rate of total sales should approach zero due to the very high (and then very low) base generated in 2023 by panic fuel sales due to concerns about its availability.  

Retail sales of furniture and household appliances (% yoy)

Source: Statistics Poland, Pekao Research

The weakest of the August pack of macro data is construction output, which fell 9.6% y/y and 0.5% m/m in August (the latter figure is the seasonally adjusted one). We wrote about the weakness of investment in 2024 long before the year began, and its performance so far confirms our intuition shaped by previous transition periods between the two EU budget perspectives. As in 2016, declines in activity in 2016 were concentrated in the first months of the year. Then construction rebounded in the autumn and the level of construction output before the slump was leveled off in the spring of the following year. This cycle is likely to look similar due to the launch of the first RRF-funded investments. In the medium term, the construction industry faces a large flurry of investment, primarily in areas such as transportation and energy. An additional driver of demand for construction services will be post-flood reconstruction, but it will only be possible to estimate it once there is more certainty about what investments will be made.

Construction output as % of previous year’ average (subsequent month in the following year(s))

Source: Statistics Poland, Pekao Research

In summary, the economic situation in 2024 is evolving for the time being very close to our projections. In this situation, we currently see no need to revise GDP forecasts for this year (average annual growth of 3%). Next year, due to the acceleration of investment, GDP growth will exceed 4%.