Economic comment

Retail sales slowed more than expected, to 0.7% y/y in October from 4.1% y/y in September (we expected 2.9%, market: 3.1%). The weakness was quite broad-based. High inflation and slowing wage growth is taking its toll on consumers. We think that the upcoming quarters will be challenging for retail sales and for consumption. In October Polish construction output rose by 3.9% y/y, beating market consensus at -0.8% y/y and our estimates of -2.1% y/y, yet we still see negative growth in the coming months and in most of 2023. Financial results of companies employing 50+ in 3Q22 show a major deterioration and a spectacular collapse of profit margins.

Industrial output rose by 6.8% y/y in October, less than the market had expected (7.8% y/y) and close to our forecast (6.7% y/y). The slowdown in output may intensify significantly in the coming months. Employment surprised to the upside and rose by 2.4% y/y versus our and market forecasts at 2.2% y/y. While employment data for the entire corporate sector do not show much weakness, manufacturing has been in a free fall since May. Wage growth was weaker than expected and advanced by 13.0% y/y vs. market consensus at 13.9% y/y and our forecast 14.3% y/y (and compared to 14.5% y/y in September). Weak performance was visible in almost all categories. Weakness in wages is a very negative sign for private consumption in the upcoming quarters. PPI inflation eased in October more than had been expected: to 22.9% y/y from 24.6% y/y and may keep falling in the months to come.

Flash GDP data showed growth down to 3.5% y/y in 3Q22 from 5.8% y/y, in line with our forecasts and slightly above the market consensus (3.4% y/y). We think that next year average GDP growth could be close to 0%. October CPI inflation was confirmed at 17.9% y/y, rising from 17.2% mostly on further rise in food and core categories. Core inflation most likely reached 11.1% y/y. We expect CPI to pause for a month at 17.9% y/y and to end the year slightly above 18% y/y.