Real wage fund growth lowest since 2016

Wage growth visibly below expectations

According to GUS data published today, nominal wage dynamics in the sector of enterprises employing above 9 people decreased to 5.3% YoY in November vs. 5.9% in October, running below the market consensus (5.9%) and our forecast (6.2%). In real terms, corporate wages, adjusted for the changes in prices, rose by 2.6% YoY in November vs. a 3.4% increase in October.

In November, the three-month rolling average for the annual nominal wage dynamics in enterprises amounted to 5.9%, hitting the lowest level since July 2017. This strongly supports our view that the decreasing capacity utilization and increasingly conservative wage policy of companies preparing for the regulatory changes in the Polish labour market have had a growing negative influence on nominal wage dynamics in recent months. These changes, conducive to higher cost of labour, include the launch of the Employee Equity Schemes as well as the announced sharp increase in the minimum wage in subsequent years. A significant hike in the minimum wage will raise the pressure on the increases of also these salaries which are now clearly above the minimum wage level (the salary scales will be adjusted). Continuing uncertainty about the planned abolition of the limitation of the annual base for the assessment of pension and disability benefit contributions (so-called 30-fold) is also negative for wage growth. Although the draft act has been withdrawn, the expected public consultations on this issue suggest a high likelihood of the 30-fold being abolished at a later date.

Employment growth after three months of decreases

According to GUS data, the employment growth rate in the enterprise sector rose to 2.6% YoY in November vs. 2.5% in October, running above the market consensus equal to our forecast (2.5%). In MoM terms, employment increased by 11.5k in November vs. a 2.7k decrease in October. The significant increase in MoM employment in November resulted from a low base effect due to a sharp cumulative decrease in employment between August and October 2019 (by ca. 13.9k). We believe that the significant increase recorded in employment in November was temporary. We expect that subsequent months (with the exception of January 2020 when the annual review of data on employment in microenterprises will be followed by a surge in employment in companies employing more than 9 persons) will see the stagnation of employment in the corporate sector. This stagnation will result from the restructuring processes caused by the growing costs of labour. We maintain our view that these processes will accelerate in the coming months, due to a sharp increase in the minimum wage in January 2020.

Real wage fund growth lowest since 2016

We estimate that the real wage fund growth rate (the employment times the average salary) in enterprises decreased to 5.3% YoY in November (lowest since December 2016) vs. 5.9% in October and 6.7% in Q3. This supports our forecast in which the consumption growth rate will decrease to 3.8% in Q4 vs. 3.9% in Q3. In subsequent quarters of 2020 we expect further gradual decrease in consumption dynamics (see MACROmap of 9/12/2019). Our scenario is supported by the December consumer survey results published today by GUS. December 2019 recorded a decrease in the leading consumer confidence indicator to the lowest level since December 2018, largely due to the deterioration of ratings for changes in the financial situation of households and for the overall economic situation in Poland in the next twelve months.

In our view, today’s data on salaries and employment in the enterprise sector are neutral for PLN and yields on bonds.