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Considerable increase in employment despite supply-side constraints

Slight acceleration of wage growth in February

In accordance with GUS data published today, nominal wage dynamics in the sector of enterprises employing more than 9 persons amounted to 7.6% YoY in February vs. 7.5% in January, running above our forecast (7.2%) in line with the market consensus. Real, adjusted for the changes in prices, corporate wages rose by 6.3% YoY in February vs. 6.5% in January.

The nominal wage dynamics increased in February despite the abatement of the impact of variable remuneration paid in many branches which boosted the annual wage growth rate in January. This means that the February data can be interpreted as a signal of further increase of wage pressure in the economy, resulting mainly from the shortage of skilled labour as one of the main barriers to business development. Despite the acceleration in wage growth in February, the average 3-month wage dynamics decreased to 7.0% YoY vs. 7.1% in January and 7.3% in November 2018.This shows that the wage pressure in the corporate sector suggested in the business surveys does not result in a strong and sustainable acceleration of wage growth.

We maintain our view that despite the afore-mentioned ongoing barrier of skilled labour shortage, the expected by us acceleration of wage growth in the national economy will not be significant (increase in dynamics to 7.6% vs. 7.2% in 2018; see MACROmap of 11/3/2019). The main factors which will limit wage growth in 2019 will be continuing low inflation in Poland's major trading partners (hampering increase of markups in the companies of the tradable goods sector), launch of Employee Equity Schemes (leading to increase in non-wage costs of labour), and restructuring processes (investments carried out by companies intending to limit labour intensity of production).

Considerable increase in employment despite supply-side constraints

According to GUS data, corporate employment dynamics have not changed in February and amounted to 2.9% YoY in January, running in line with our forecast and the market consensus. In monthly terms, employment increased by 9.6k (0.2% MoM). The visible increase in employment in February occurred despite the ongoing supply-side barrier in the form of shortage of skilled labour. In our view, this increase resulted from the continuously high number of job offers in the private and public sector and the growing participation rate (entry to the labour market of so-far economically inactive persons, encouraged by visible increase in real wages and stable employment prospects). We maintain our view that due to the afore-mentioned supply-side constraints, the annual employment dynamics will gradually decrease in the coming months, continuing the trend observed in H2 2018.

Fast wage fund growth supports consumption

We estimate that the real wage fund growth rate (employment multiplied by average wage) in enterprises amounted to 9.4% YoY in February vs. 9.7% in January. The high real wage fund growth rate is consistent with our forecast of a slight acceleration in consumption growth from 4.3% YoY in Q4 2018 to 4.6% in Q1 2019. Due to the government-announced payment of additional benefits to pensioners in May 2018, we expect a sharp temporary acceleration in consumption to 5.4% YoY in Q2 (see MACROmap of 11/3/2019).

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