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Is the slowdown of wage growth temporary?

Base effects temporarily slowed wage growth

In accordance with GUS data published today, nominal wage dynamics in the sector of enterprises employing more than 9 persons dropped to 6.8 % YoY in August from 7.2% in July, running slightly above our forecast (6.7%) and below the market consensus (7.0%). Real, adjusted for the changes in prices, corporate wages rose by 4.7% YoY in August vs. 5.1% in July.

In our view, the main factor behind the lower wage dynamics in August 2018 was the last year's high base effect (strong MoM wage increase recorded in mining in August 2017). This effect will abate in September 2018, which will be conducive to a visible acceleration in corporate wage growth in annual terms.

We expect that the annual wage growth supported by moderate wage pressure in several industries will stand between 7% and 8% in subsequent months. The factors which limit wage growth in enterprises are the uncertainty about the date of the launch of the Employee Equity Scheme (conducive to increase in nominal wage fund) and the possible entry into force of the act lifting the limit on the annual basis for pension contributions (the projected average wages in 2019 times 30). We believe that the negative impact of this factor on corporate wage growth will keep growing in the coming months.

Surprising employment decline in August

According to GUS data, corporate sector employment dropped by 2.0k MoM in August vs. a 9.1k increase in July. The annual employment growth dropped to 3.4% YoY in August vs. 3.5% in July. Though, for seasonal reasons, the monthly employment growth is usually lower in August than in July, the drop in employment in August is a surprise. This decline is most probably caused by the growing barrier in the form of shortage of skilled labour, which is more and more heavily slowing down the corporate employment growth. In our view, the fact that this barrier is growing is confirmed by the first since Q3 2015 annual decline in employment in manufacturing (down by 0.6%), recorded in the labour force survey in Q2 2018.

The slowdown in corporate wage growth is in line with our scenario assuming gradual decline in non-agricultural employment growth rate in the coming quarters (see MACROmap of 10/9/2018).

Temporary slowdown of wage fund growth

We estimate that the real wage fund growth rate (employment times average wages) in enterprises dropped to 8.2% YoY in August vs. 8.8% in July and 9.5% in Q2. Thus, the real wage fund was growing in August at the slowest pace since July 2017. This is in line with our forecast of private consumption growth decreasing to 4.8% YoY in Q3 vs. 4.9% in Q2. We expect that in Q4 2018 the real wage fund growth will increase due to the forecast by us decline in inflation (see MACROpulse of 13/8/2018) and slight acceleration in nominal wage growth

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