The last good data from the labour market before the outbreak of the epidemic

Marked acceleration of wage growth in February

According to GUS data published today, nominal wage dynamics in the sector of enterprises employing above 9 people amounted to 7.7% YoY in February vs. 7.1% in January 2019, running clearly above our forecast (7.0%) equal to the market consensus. In real terms, corporate wages, adjusted for the changes in prices, rose by 2.9% YoY in February vs. 2.6% in January.

In our view, conducive to the faster wage growth in February was sharp increase of the minimum pay at the beginning of the year. This positive effect has already largely materialized in January (see MACROpulse of 19/2/2020). However, we should bear in mind that the increase in the minimum wage also contributes towards increasing the wages of higher earners – the employers increase their salaries to maintain adequate relations between remunerations at different positions in the wage grid. We believe that this effect has markedly boosted the average wage dynamics in February.

The increase in the wage growth rate between January and February resulted also from the statistical effect in the form of a favourable difference in the number of working days (in February 2020 the number of working days was 1 day lower than in 2019, while in February 2020 it was the same as the year before), which was conducive to higher pay for piece work.

One of the reasons for higher nominal wage growth in February may have been the pay rises announced in certain branches (e.g. mining).The verification of this hypothesis will be possible after detailed data on the wage structure have been published in the Statistical Bulletin.

Weakening demand for labour has limited employment growth

According to GUS data, wage dynamics in the sector of enterprises have not changed in February compared to January and amounted to 1.1% YoY. In MoM terms, employment increased by 5.0k. This has been the lowest February increase in the number of jobs since 2015. We believe that the increase in the number of jobs was mainly limited by two factors – higher minimum wage and weakening demand for labour due to the slowdown of economic growth.

COVID-19 epidemic will deteriorate the situation in the labour market and weaken consumption

We should bear in mind that the quite good February data from the labour market refer to a different reality from the one we are dealing with now, i.e. to the times before the outbreak of the coronavirus epidemic. The economic shock related to COVID-19 will contribute, in our view, to a marked deterioration in the labour market. Difficult financial situation of companies will be conducive to slower wage growth and decline in employment and thus to higher unemployment rate.

A substantial upside risk to the unemployment rate is the government “fly home” program consisting in the provision of transport to Poland for citizens staying currently abroad. Some of them may remain in Poland for a longer period of time and register as unemployed. In addition, we now observe a tendency towards mass registration of Poles (i.a. professionally inactive people, people working on the black market or under contracts for specific work or task) with employment offices as unemployed in order to get health insurance. This factor will visibly boost the unemployment rate profile in the medium term. Our scenario has factored in the negative impact of the COVID-19 epidemic on the situation in the labour market in Poland. However, a precise assessment of the scale of impact of the aforementioned two factors is subject to considerable uncertainty. We therefore see an upside risk to our forecast of the unemployment rate and a downside risk to our forecast of the growth rate of nominal wages in the national economy and employment (see MACROmap of 16/3/2020).

We believe that the net effect of the epidemic on consumption in Poland in Q1 2020 will be limited. The unfavourable effect of closed schools, restaurants and shopping malls and other measures aimed at limiting the number of infections will be largely offset by increased private consumption resulting from stocking up by households. We therefore maintain our forecast of private consumption increase by 2.0% YoY vs. 3.3% in Q4 2019. In our view, we will see a sharp YoY decline in consumption in Q2 2020.

Today’s data on salaries and employment in the enterprise sector are neutral for PLN and bond yields, we believe.