In June, Poland’s construction output (-8.9% YoY ) was weaker than expected. While an increase in capacity utilization has been seen, the current overall condition of the industry remains very weak. What’s the actual sentiment?

YoY declines were recorded in all categories. Civil engineering construction contracted by 0.9% YoY, -6.6% in May. This was driven primarily by a large drop in activity, caused by the slow start of projects from the Recovery and Resilience Facility (RRF) and the new budget. The Polish RRF renegotiation process is not over yet, and it can be assumed that we’ll need to wait until 2025 for more improvement.

The construction of buildings decreased by 17.9% YoY. In this case, ING is likely seeing weaker activity from residential developers. Demand for new properties slowed after the previous government’s housing market support program was exhausted. According to companies, more apartments were offered in recent months than were sold. The increase in housing prices in 2023/2024 has also meant that even with public support, many people cannot afford their property. The condition of commercial construction is also likely to be weaker, due to the saturation of the warehouse space market or weak business investment.

However, the large number of new construction starts may suggest that developers might be preparing for a resurgence in demand. While a rebound in construction as a whole is not likely to occur until 2025, in residential construction it could be as early as the second half of 2024.

At the same time, Polish retail sales rose by 4.4% YoY in June, following an increase of 5.0% YoY in May. Seasonally adjusted data points to a 1.5% MoM expansion in sales. In Q2, they increased by around 4.5% YoY, following an increase of 5.0% YoY in the first.

Car sales remained strong in June (+24.3% YoY), and the scale of sales contraction in other durable goods was slightly lower than the month before (-6.7% YoY). The relatively stable increase in fuel sales (+11.0% YoY) was accompanied by a marked decline in sales of other necessities; purchases of clothing and footwear were 19.3% lower in June than a year earlier (down by 13.5% YoY in May). Food purchases resumed their deeper contraction – down by 4.0% YoY.

Overall, the data indicates that Polish consumers remain cautious, a sign that the real income growth is not very solid. Reported consumer sentiment also indicates an increase in household concerns about future economic conditions and their financial situation. The latter factor may be linked to the partial withdrawal of the energy shield. The increase in electricity and gas bills expected by households may prompt them to cut back on other spending.

The Polish economy continued its recovery in 2Q24, but the improvement was somewhat smaller than analysts had previously expected. For 2024 as a whole, ING continues to see economic growth of around 3%.