Accelerating wage fund growth

Slight acceleration of wage growth in November

In accordance with GUS data published today, nominal wage dynamics in the sector of enterprises employing more than 9 persons rose to 7.7 % YoY in November from 7.6% in October, running above our forecast (7.1%) and the market consensus (7.2%). Real, adjusted for the changes in prices, corporate wages rose by 6.3% YoY in November vs. 5.7 in October. In our view, the acceleration in nominal wage growth in November resulted mainly from last year's low base effects for wages in mining (in November 2017 the annual wage growth in the sector "mining and quarrying” dropped to -4.2% YoY vs. 6.6% in October) and therefore was largely temporary. The publication of detailed data on wage structure in the Statistical Bulletin will enable us to verify this thesis.

We maintain our view that sustained acceleration of wage growth in subsequent months is unlikely and the annual wage growth rate will stand around 7%. This scenario is strongly supported by a decrease in corporate wage pressure signaled by business surveys. In addition, wage growth will be limited by high base effects for mining wages, launch of the Employee Equity Scheme (meaning higher non-wage labour costs), and uncertainty about the fate of the act lifting the limit on the annual basis of assessment of pension contributions (so called "30-fold”), found to be unconstitutional by the Constitutional Court in November. The room for wage increases will also be limited by higher operating costs of enterprises due to the rising electricity prices (see MACROmap of 8/10/2018).

Base effects lowered employment growth

According to GUS data, corporate sector employment rose by 5.1k MoM in November vs. a 2.4k increase in October. Due to last year's high base effects (November 2017 recorded a surprisingly sharp monthly increase in employment by 17.2k), annual employment dynamics decreased to 3.0% vs. 3.2% in October. Like in previous months, employment growth in November was limited by the increasingly heavy barrier in the form of shortage of skilled labour and the restructuring processes in certain industries (conducive to lower number of jobs). These processes will be carried out with a view to increasing production capacity by replacing labour-intensive techniques with capital-intensive ones, which will facilitate higher productivity. We expect that, due to the above-mentioned factors, the annual dynamics of corporate employment will gradually decrease in subsequent months. This is in line with our scenario assuming a gradual decline in non-agricultural employment growth rate in the coming quarters (see MACROmap of 10/12/2018).

Upside risk to consumption growth in Q4

We estimate that the real wage fund growth rate (employment times average wages) in enterprises rose to 9.5% YoY in November vs. 9.0% in October and 8.4% in Q3. This poses an upside risk to our forecast of private consumption growth in Q4 2018 (4.4% YoY vs. 4.5% in Q3).

Today's data on corporate wages and employment are neutral for PLN and bond yields, we believe.