Polish retail sales fell 4% year-on-year in constant prices in July (chart), easing their fall by 0.7pp compared to the preceding month, the statistics office GUS said on August 22.

The reading was only marginally below the consensus line of -3.7% and confirmed that the retail sector is going through a recession, driven by inflation eating into Poles’ real incomes and the high cost of mortgage repayments due to high interest rates.

Analysts say that the remainder of 2023 could see some improvement.

“Data on retail sales indicate a slight improvement, which in our opinion will continue in the coming months, primarily due to growing consumer optimism, a decrease in inflation, and a still stable job market situation,” Santander Bank Polska said in a comment.

The overall picture – supported by other high-frequency data published this week – continues to point to Poland’s economic growth at around 1% in 2023.

Just one of the eight main retail segments managed expansion in July, GUS showed in the breakdown of the data.

Food sales fell 4.2% y/y in July versus a reduction of 3.8% y/y in the sixth month. Sales of textiles, clothing, and footwear declined 4.8% y/y in July, following a slide of 1.9% y/y in the preceding month.

Car and car parts sales grew 3.8% y/y (-1.9% y/y in June), while the turnover in the pharmaceuticals and cosmetics segment declined 1.5% y/y after no change y/y in the sixth month.

Fuel sales fell 55% y/y in July (-8.3% y/y the preceding month). Sales of furniture, audio and video equipment, and domestic appliances dwindled 11.6% y/y in July after falling 14.4% y/y in June.

Sales added an unadjusted 1.9% month-on-month in constant prices in July after the June gain of 0.9% m/m.

In current prices, retail turnover expanded 2.1% y/y in July, the same rate as in June. In m/m terms there was a gain of 1.2% (+0.6% m/m the preceding month).

Retail turnover also expanded 1.3% m/m in July following seasonal adjustment (+0.6% m/m in June).

Today's data come against the changing context of Poland’s monetary policy.

The National Bank of Poland is currently expected to deliver a first interest rate cut possibly as soon as September in response to disinflation now visible across all main indicators and the overall weakness of the economy, as seen in retail sales and other high-frequency data.

Polish interest rates are at their 20-year high of 6.75%.