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Double-digit growth of wages and industrial production

Wage growth hitting new records

In accordance with the GUS data published today, nominal wage growth in the sector of businesses employing more than 9 employees increased from 9.8 YoY in November to 11.2% in December, running markedly above our forecast (8.9%) and market consensus (9.1%). This means that the annualised nominal wage growth in December reached the highest level since July 2008. In real terms, after adjusting for price changes, wages in businesses rose by 2.4% YoY in December vs. a 1.9% growth in November. It is also worth noting that the 10.3% increase in average monthly wages seen in December was the highest monthly increase in the recorded history. In our opinion, the strong wage growth in December was driven by payments of wages for overtime work (a consequence of the fourth wave of the pandemic and a huge number of quarantined employees), shifts in the dates of payment of variable remuneration components (bonuses and annual rewards were paid earlier in relation to the increasing tax progressivity resulting from the adoption of the Polish Deal), and by the wage pressure, which is growing gradually.

A stronger growth in wages combined with a slight slowdown of the employment growth in the enterprise sector in December (to 0.5% YoY vs. 0.7% in November) resulted in an increase in the real wage fund growth rate in the enterprise sector, the rate being the product of employment and average wage adjusted for changes in prices, from 2.6% YoY in November to 2.9% in December. Consequently, the quarterly wage fund growth slowed down from 4.4% YoY in Q3 to 2.5% in Q4. Nonetheless, we expect the consumption growth to accelerate strongly from 4.7% YoY in Q3 to 6.9% YoY in Q4, supported by the 2020 low base effect. However, further deterioration of the current consumer sentiment index seen in December, the index going down to the level reported in November 2020 (the peak of the second wave of the pandemic) and Q1 2013 (a cycle trough observed in 2013), suggests that the strong inflation rise will be curbing consumption growth in the months to come.

Industrial production keeps on growing fast

In accordance with the GUS data, the volume of industrial production sold in enterprises employing more than 9 people increased by 16.7% YoY in December compared to 15.3% in November, running markedly above the market expectations (13.0%) and our forecast (15.0%). The reason behind the acceleration of the industrial production growth between November and December was the statistical effect of a favourable difference in the number of business days (in November 2021, the number of those days was the same as in November 2020, while in December 2021, there was one more business day comparing to the preceding year). Seasonally-adjusted industrial production shrank by 0.2% MoM in December. As regards the production structure in December, particularly noteworthy is the continuing quick growth in the production of intermediate goods (17.6% YoY vs. 17.0% in November), which suggests that inventories were still being increased in response to a high risk of disruptions in the supply of materials and components caused by new restrictions in the countries (predominantly Asian ones) that are an important source of supplies for the companies operating in the Polish industrial manufacturing sector. Sector-wise, particularly noteworthy is the acceleration of production growth in the categories with a substantial share of export sales in the revenues (from 8.3% YoY in November to 9.5%). In our opinion, it is indicative of a gradual weakening of the barrier caused by bottlenecks in the production process.

However, the construction and assembly production growth in December was surprisingly low: production grew by 3.1% YoY comparing to 12.7% in November, running markedly below the market consensus (9.0%) and our forecast (17.0%). Production growth slowed down strongly despite the statistical effect of a favourable difference in the number of business days that we have mentioned above. Seasonally-adjusted construction and assembly production decreased in December by 5.6% MoM (the strongest monthly decline since February 2021). The production decline in December was strong enough to consume over 80% of the aggregate production growth in October and November. However, the GUS data on business sentiment point to an increase in the value of the index for the current order book in the construction sector to the highest level since March 2020, which was the month when the pandemic broke out. It indicates that the significant decline in activity observed in the construction sector in December is not a signal of a reversal of the upward trend seen in this sector in 2021.

Slight upside risk for GDP growth in Q4 2021

Today's labour market, industrial production and construction and assembly production data for December point to a slight upside risk to our forecast, in which Poland's GDP is to have grown by 7.0% YoY in Q4 2021. It will be possible to assess that risk more thoroughly after the publication of data on retail sales in December, which is planned for Monday.

In our opinion, the labour market and production data is slightly positive for the PLN and the yields on Polish bonds.