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Real wage growth rate slowest since April 2017

According to GUS data published today, nominal wage dynamics in the sector of enterprises employing above 9 people amounted to 5.3% YoY in June vs. 7.7% in May, running significantly below our forecast (7.2%) and the market consensus (7.0%). In real terms, corporate wages, adjusted for the changes in prices, rose by 2.6% YoY in June (the slowest growth since April 2017) vs. 5.2% in May. One of the reasons behind sharp decrease in the annual wage dynamics in June was the statistical effect in the form of an unfavourable difference in the number of working days (in May the number of working days was 1 day higher from 2018 while in June 2019 it was lower by 2 days than the year before) which lowered the wage dynamics of workers paid by the piece.

Our forecast of the June wage dynamics has factored in the calendar effect; therefore, we find its sharp decrease compared to May very surprising. The results of the quarterly business survey published yesterday by the NBP (Quick Monitoring) may cast more light on the reasons for the surprisingly slow wage growth in June. They indicate that Q3 has been the second consecutive quarter in which both the percentage of companies feeling an increasing wage pressure and the percentage of companies planning significant pay rises in the coming quarter have decreased. In addition, despite a growing and the highest since Q2 2008 percentage of employees covered by pay rise schemes, the percentage of companies planning salary increases not exceeding 5% rose in Q3 to the highest level since Q3 2016. Therefore, the business survey data signal a weakening of the wage pressure in companies with a simultaneous reduction of the scale of the anticipated salary increases. These tendencies may to a certain extent explain the wage surprise in June.

We maintain our view that higher inflationary expectations resulting from higher dynamics of food prices will be conducive to a moderate increase in the wage growth rate until the end of 2019 (see MACROmap of 8/7/2018). We believe, however, that the probability of a strong acceleration of wage growth in H2 2019 is low. The wage growth potential in the coming quarters will be limited by continuously low inflation in Poland’s major trade partners (pressure on enterprises’ markups), launch of the Employee Equity Schemes and expected removal of the cap on annual income subject to social security contributions (so-called 30-fold) starting from 2020 (increase of non-wage costs of labour), and investments implemented by companies to reduce labour intensity of production (increase in productivity).

Low base effects supported employment growth in June

According to GUS data, the employment growth rate in the enterprise sector rose to 2.8% YoY in June vs. 2.7% in May. In MoM terms, employment increased by 13.6k. The marked increase of employment in June was due to a low base effect, resulting from a relatively sharp cumulative drop of employment in April and in May (in total by 13.4k). We expect the trend towards increase in employment to continue into subsequent months. However it will weaken due to the persistent barrier in the form of shortage of skilled labour. Consequently, the employment rate growth will gradually slow down (see MACROmap of 15/7/2019).

Slight downside risk to the forecast of consumption in Q2

We estimate that the real wage fund growth rate (the product of employment rate and the average salary) for the enterprise sector dropped to 5.5% YoY in June (the lowest level since December 2016) from 8.1% in May. Consequently, the real wage fund increased by 7.1% YoY in Q2 vs. 8.8% in Q1. The marked slowdown of the wage fund growth in June signals a slight downside risk to our forecast of a sharp increase of private consumption dynamics in Q2 (5.0% YoY vs. 3.9% in Q1) resulting mainly from the payment of additional benefits to pensioners.

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