Double-positive surprise in the labour market

Surprisingly high pace of wage growth in January

In accordance with GUS data published today, nominal wage dynamics in the sector of enterprises employing more than 9 persons amounted to 7.5 % YoY in January vs. 6.1% in December, running above our forecast (6.5%) and the market consensus (6.8%). Real, adjusted for the changes in prices, corporate wages rose by 6.5% YoY in January vs. 4.9% in December.

The significant acceleration in wage growth in January was affected by higher-from-previous-year increase of minimum wage (in 2018 it was raised by 5.0% while in 2019 it rose by 7.1%). However, the wage growth increase in January was visibly higher than we had expected. We are interpreting this as a signal of further increase of wage pressure in the economy. This view is supported by business surveys pointing to the shortage of skilled labour as one of the main barriers to business development. Also data on wage growth in the national economy in Q4 (7.7% YoY, the highest since Q3 2008) point to increase in wage pressure. However, we do not rule out that the wage growth in January was temporarily boosted by the payment of variable remuneration in certain branches. A fuller assessment of the surprisingly high wage growth rate in January will be possible after seeing GUS data on wages in individual branches of the corporate sector.

The clearly higher than expected wage growth in January signals an upside risk to our forecast of wage growth in the national economy in the whole 2019 (7.0%). However, we still believe that a sharp wage growth increase in 2019 is hardly likely. The main factors which will limit wage growth in 2019 will be ongoing low inflation in Poland's major trading partners (hampering increase of margins in the companies of the tradable goods sector), launch of Employee Equity Schemes (involving increase in non-wage costs of labour), and restructuring processes (investment carried out by companies intending to limit labour intensity of production). Our expectations are supported by the results of the January NBP business survey (Quick Monitoring). They indicate that the scale of the wage increases forecast for 2019 will not be substantially higher from 2018.

Sample revision has increased employment

According to GUS data, corporate employment dynamics amounted to 2.9% YoY in January vs. 2.8% in December, running significantly above our forecast (1.8%) and the market consensus (1.9). In monthly terms, employment increased by 135.7k. The strong monthly employment growth resulted from the annual revision of data on employment in microenterprises (employing up to 9 persons). Companies where employment exceeded 9 persons last year were added to the group of units employing at least 10 persons. The increase in employment in January 2019 was markedly higher than the year before (when it amounted to 121.8k), which was conducive to increase in its annual dynamics. We maintain our view, in which, due to the ongoing supply-side barrier in the form of shortage of skilled labour, the annual employment dynamics will gradually decrease in the coming months, continuing the trend observed in H2 2018.

Upside risk to consumption dynamics in Q1

We estimate that the real wage fund growth rate (employment times average wage) in enterprises amounted to 9.7% YoY in January vs. 7.8% in December 2018 and 8.8% in Q4 2018. Due to the above-mentioned revision of data on employment in microenterprises, the data on real wage fund growth in December 2018 and January 2019 are not fully comparable. A fuller assessment of real wage fund trend will be possible in March after the publication of the February data on wages and employment. However, the surprisingly fast increase in real wages in January signals an upside risk to our forecast of consumption growth in Q1 (4.2% YoY vs. 3.9% in Q4 2018).

Today's data on corporate wages and employment are slightly positive for PLN and bond yields.