Economic slowdown more and more visible

Real wages slumping faster and faster

In accordance with the GUS data published today, nominal wage growth in the sector of businesses having more than 9 employees dropped to 13.0% YoY in June from 13.5% YoY in May, running below market consensus and our forecast (13.3%). In real terms, wages in businesses, adjusted for price changes, fell by 2.2% YoY in June compared to a drop of 0.3% in May. Thus, June was the second month in a row to see a YoY drop in real wages due to price rises outpacing nominal wages. In our opinion, the slump in wages seen in recent months may mean that businesses are less willing to give pay rises amidst the economic downturn, despite mounting pay pressure due to rising inflation.

Businesses start to curb hiring

Employment growth in the business sector dropped to 2.2% YoY in June from 2.4% in May, running in line with market consensus and above our forecast (2.1%). Month-on-month, employment grew by 5,1k. In accordance with the press release from GUS, growth in average employment in May 2022 was to a large extent seasonal. We believe that the slowing trend in employment growth will become stronger in the coming months due to decline in job demand linked to an expected slowdown in economic growth. Such an assessment is supported by GUS business survey results showing a drop in expected employment in all industries covered by the survey.

Decline in real wage fund a risk factor for our consumption path

Slowing employment growth and a year-on-year decline in real wages in the enterprise sector contributed to a decline in the real wage fund growth rate in the enterprise sector (the product of employment and average wage adjusted for changes in prices), to -0.1% YoY in June vs. 2.1% in May. As a result, the average growth rate of the real wage fund declined to 2.1% YoY in Q2 vs. 3.8% in Q1. Thus, today's data poses a downside risk to our forecast for acceleration in consumption in Q2 (to 7.4% YoY from 6.6% in Q1). A more precise assessment of this risk will be possible after we see the retail sales data for June, which will be released on Friday.

Another decline of seasonally adjusted industrial production

In accordance with the GUS data, the volume of industrial production sold in enterprises employing more than 9 people decreased by 10.4% YoY in June compared to a 14.9% increase in May (downward revision from 15.0%), running below the market consensus (11.2%) and above our forecast (9,1%). A statistical effect coming from an unfavourable difference in the number of working days between May and June (in May, the number of working days was two days higher than in 2021, while in June it was the same as a year ago) drove the industrial production growth down. Seasonally-adjusted industrial production shrank by 0.9% MoM in June (the third consecutive monthly decline in production). Thus, the cumulative decline in production recorded since March amounted to 3.8%.

The decline in industrial production growth between May and June was broad-based, and was recorded both in categories where sales are predominantly export-oriented (8.3% YoY in June vs. 13.5% in May), in construction-related industries (14.2% vs. 20.2%) and in other industries (10.8% vs. 14.8%). The wide range of decline in the industrial production growth was previously signalled by a marked deterioration in business surveys both in Poland and among Poland's main trading partners (see MACROmap of 27/6/2022 and MACROpulse of 1/07/2022).

GDP growth slowing down in Q2

Today's data is yet another sign of the strong slowdown we have been expecting in Poland's GDP growth in Q2 (to 4.7% YoY from 8.5% in Q1). A more accurate assessment of the trend in the economic activity in Q2 will be possible after Friday's release of retail sales and construction-assembly production data for June.

In our opinion, today’s data is neutral for the PLN and the yields on Polish bonds.