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July data on commercial production, structure and retail sales surprised to the downside, indicating a deterioration in the economic situation towards the end of 2Q22. Annual GDP expansion is likely to approach 7%, but is expected to decline sharply in the coming quarters. Downside dangers to our target rate of 8. 5% have increased
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Retail sales increased by 3. 2% year-on-year in June (ING: 7. 2% year-on-year; consensus: 5. 9% year-on-year), following a year-on-year increase of 8. 2% in May. The building Increases were mainly recorded in sales of essential commodities (textiles, food, pharmaceuticals), and, among others, through purchases by refugees from Ukraine. At the same time, sales of expensive fuels and durable goods have deteriorated further. Sales of goods fell 2. 8% month-over-month in seasonally adjusted terms. The deteriorating economic outlook, weak customer confidence, high costs, and the expiration of savings accumulated in the past are starting to affect customer spending.
In June, the production of structures increased by 5. 9% year-on-year, below market expectations (around 11% year-on-year). This is due to a much lower construction of civil engineering structures than in May and a decrease in activity in specialized structure. Building structure, on the other hand, performed well, emerging 15. 2% year-on-year, following a 1. 7% drop a month earlier. StatOffice reported a decrease of 2. 5% year-on-year in investment paints and accumulating in fixed paints (20. 1% year-on-year). The seasonally adjusted structure fell by 3. 5% month-on-month.
The disposition of knowledge is emerging. The immediate deterioration in housing demand (e. g. based on loan applications) suggests a decline in design design, despite the favourable base effects of 2021. It is conceivable that contractors will speed up the work, fearing a further drop in demand and housing costs as curtain costs rise. We are bearish in design due to emerging interest rates, regulatory adjustments (a design in the buffer when assessing solvency), and uncertainty about design due to the war in Ukraine. In such an environment, the acceleration of housing completions can put downward pressure on space costs.
The monthly dataset released today completes the economic outlook for 2Q22. Industry, structure and industry recorded declines per month in June on a seasonally adjusted basis. The same is probably true for 2Q22 GDP compared to the previous quarter, there is still a chance of an expansion of around 7% per annum. This is the last smart quarter before a slowdown whose symptoms were visible last month. We expect a particularly worse time by half, while 2023 will be overshadowed by exceptionally high uncertainty.
The deteriorating economic outlook has resulted in a sharp decline in the price of the MPC, despite the continued main dangers to the inflation outlook. This means that the MPC will be cautious and will rise 25 basis points. The chances that the rate of the National Bank of Poland will not reach 8. 50% or will achieve it later than expected are increasing. The main dangers are similar to the CPI and the prospects for the zloty.
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Senior economist
Senior Economist, Poland
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