The retail sale of goods increased by 4.1% YoY in September, following an increase of 4.2% YoY in August. Elevated inflation is weighing on the propensity to consume as pictured by the deep fall in fuel sales (-20.4% YoY). Sales of durable goods continue to fall (cars: -2.9% YoY; furniture, consumer electronics, household appliances: -4.3% YoY). At the same time sales of necessities continue to rise. Cooler temperatures in September boosted sales of clothing and footwear (+25.2% YoY). When assessing September’s retail performance, it must be remembered that it was supported by the 14th pension payments that took place in August and September. The retail sales data suggest that high inflation is undermining consumers’ purchasing power to such an extent that they are more cautious in their purchasing decisions. This is especially visible in poor demand for durable goods, where high uncertainty and unfavourable consumer sentiment are taking their toll. Some households are struggling to secure heating fuel for the winter and face high fuel prices. In addition to slower growth in demand for goods, the post-pandemic rebound in services is fading. On the brick of no-return.
ING estimates that in 3Q22 GDP growth exceeded 3% YoY, with a significantly lower contribution from consumption than observed in 1H22. This means a deceleration in annual GDP growth, which in 2Q22 was at 5.5% YoY.
Employment in September increased by 2.3% YoY. It can be expected that, as in previous months, the increase in employment is mainly driven by services (retail trade, accommodation and catering). According to ministerial data, more than 400,000 Ukrainian refugees who have arrived in Poland since the start of the war have already found employment. This shows that the demand for labour remains strong. However, the labour market is persistently tight. On top of that, there will be a very generous increase in the minimum wage from the beginning of 2023. Given the tight labour market, this should spur a wave of wage increases, maintaining double-digit wage growth in the business sector for most of next year. The high minimum wage increase in 2023 will yield a wage-price spiral regardless of the market structure. The condition of the labour market is an argument for further tightening by the central bank, possibly with a hike in November.
At the same time, the second-largest monthly trade deficit was recorded this year. According to the National Bank of Poland commentary, this was mainly the result of higher demand for energy commodities, primarily coal. The geographic structure of fuel imports changed significantly, whereas Russia ceased to be Poland’s main trading partner in this area. Imports of auto parts, among other things, also increased. Imports in total increased by 28% year-on-year, following a 21% rise a month earlier. On the export side, a significant increase in automotive sales was observed, both in parts (especially batteries and engines), as well as new cars and vans. In tandem with increased imports of car parts, this suggests a general recovery in the automotive industry, likely linked to less severe supply chain disruptions.
In this context, the primary income balance recorded a deficit of €3,073mn, up from €2,311mn a month ago. Income from direct investment in Polish entities accounted for the vast majority (nearly 85%). However, this time it was not offset by the balance of services, which closed August with a surplus of €2,161mn, the lowest this year. The month before, it amounted to €2,332mn. The current account balance’s weak performance in August confirms that its 12-month deficit will widen in the coming months. It widened to 3.9% of GDP in August from 3.6% of GDP after July. It should reach around 5% of GDP by the end of the year. This is one of the key reasons for the observed weakness of the zloty. In particular, Poland has not gained access to the Recovery Fund, the exchange of which in the market for the zloty would counterbalance the deteriorating trade balance.
Moreover, in September construction output increased by just 0.3% YoY, compared to an increase of 6.1% in August. Construction of buildings slowed to 8.7% YoY from 25.7% a month ago, although it remained by far the strongest category. New residential construction remains on a strong downward trend, as developers fear a further decline in demand and a collapse in real estate prices, while construction costs may be rising. The number of housing units under construction remains near record levels, but after a very strong 1H22, this is slowing strongly and is now below last year’s level in August. Infrastructure investment-related categories again performed poorly: civil engineering declined by 2.3% YoY (-1.6% YoY in August) and specialised construction works fell by 4.9% YoY (-1.3% YoY a month prior). This is likely the result of effects already seen in previous months: a strong increase in production costs, which makes it difficult to issue new tenders, particularly by the public sector, or a lack of funds from the Recovery Fund. Construction may turn out to be one of the weakest elements of the domestic economy at the turn of the year. Its main driver, housing construction, is weakening significantly, and the necessary monetary tightening does not promise recovery in demand in the coming quarters. Without access to the Recovery Fund, it is also difficult to assume an imminent improvement in infrastructure investment.
