First signs of slowdown in economic growth
Nominal wages seeing strongest growth in over 20 years
In accordance with GUS data published today, the nominal wage growth rate in the sector of companies employing more than 9 employees increased to 14.1% YoY (strongest growth since April 2000) from 12.4% in March, running well above our forecast (12.5%) and the market consensus (12.6%) In real terms, after adjustments made to account for changes in prices, wages in companies rose by 1.6% YoY in April relative to 1.3% in March. The faster growth rate of nominal wages and the growth of inflation recorded in April (see MACROpulse of 13/05/2022) caused a slight uptick in real wages growth in annual terms.
It is worth noting that wage rises in April had a very broad scope. An increase in the annual growth rate of nominal wages between March and April was observed in 11 out of 15 sectors listed in the GUS press release. Moreover, for the third month running, ‘wage rises’ were explicitly named in the GUS press release as the driver of the wage growth, confirming that mounting wage pressure was a key factor contributing to the acceleration of wage growth in the enterprise sector. April wage growth data signal an upside risk to our wage growth forecast for the national economy in 2022 (9.6%).
Influx of Ukrainian refugees supports employment growth
Employment in the enterprise sector expanded to 2.8% YoY in April, up from 2.4% in March, outperforming the consensus estimate of 2.7%, which was consistent with our forecast. In monthly terms, employment grew by 11.7k. The robust employment growth was partly attributable to the influx of refugees from Ukraine to Poland. According to the data published by the Ministry of Family and Social Policy, some 130,000 Ukrainian refugees have already found work in Poland. However, it should be noted that not all of them are classified as employed in the enterprise sector. At the same time, the GUS statistics continue to only provide a limited view of the decline in employment related to the return of Ukrainians thus far working in Poland to their homeland. We believe that some of them arranged with their employers to take unpaid leaves instead of quitting their jobs. According to the GUS methodology, if the leaves last less than three months, people taking them are still counted as employed. Thus, the effect of this factor will not materialise before H2 2022. The slowdown in employment growth will be strengthened by lower demand for labour in the wake of the expected economic slowdown.
The acceleration in employment and real wage growth in the enterprise sector contributed to an increase in the real growth rate of the wage fund in the enterprise sector (product of employment and average wages after adjustments made to account for changes in prices) to 4.4% YoY relative to 3.8% in March. We maintain our forecast anticipating a slight slowdown in consumption in Q2 (to 5.8% YoY from 7.5% in Q1). The main factor driving down the real growth of private consumption will be the further increase in inflation we are expecting.
First signs of slowdown in exports
According to GUS data, the volume of industrial products sold in companies employing more than 9 employees expanded by 13.0% YoY in April compared with a gain of 17.3% in March, running below market expectations (17.8%) and our forecast (16.2%). Adjusted for seasonal factors, industrial production contracted by 0.4% MoM in April (first drop on a MoM basis since December 2021).
The main factor contributing to the slowdown in overall production growth between March and April (by 3.4 pp) was the unexpected deceleration in the “Electricity, gas and water production and supply” category from 77.4% YoY in March to 29.5% in April. We believe that strong fluctuations in this category may be related to the GUS’ difficulties with estimating the deflator (i.e. change in prices) in the current environment of soaring energy prices. If production had remained stable in the energy sector, the growth rate of industrial production in April would have been similar to the level recorded in March.
April saw an increase in production in categories where sales are predominantly export-oriented (5.2% YoY in April against 2.2% in March). This mainly follows from the sharp rise of production in the “motor vehicles, trailers and semi-trailers” category (by 9.4% YoY compared to a contraction of 12.7% in March) related to the resumption of production in Volkswagen plants following a two-week pause caused by a component shortage. Excluding the automotive industry, production in export categories recorded a marked decline between March and April. This trend would be consistent with April’s PMI results, which signalled that foreign demand weakened on the back of an unstable market environment and rising prices. Businesses also pointed out that the war in Ukraine eroded demand and exacerbated supply chain issues and price volatility. We expect Poland’s exports to slow down in the coming quarters against the backdrop of weakening economic growth in the Eurozone forecasted by us.
GDP growth slowdown in Q2
Today’s data on industrial production are the first signal of the slowdown in Poland’s GDP in Q2 (to 3.1% YoY from 8.5% in Q1) that we anticipate. A more detailed assessment of economic activity trends in Q2 will be possible after the release of Monday’s data on retail sales and construction and assembly production in April.
In our opinion, today’s data is neutral for the PLN exchange rate and yields on Polish bonds.