The first drop of real wages since the pandemic
According to the GUS data released today, nominal wage growth in the sector of businesses having more than 9 employees slowed to 13.5% YoY in May from 14.1% YoY in April, running below our forecast (14.4%) and market consensus (14.6%). In real terms, wages in businesses, adjusted for price changes, fell by 0.3% YoY in May compared to an increase of 1.6% in April. This is the first YoY drop in real wages (meaning that price rises outpaced nominal wage growth) since the first wave of the COVID-19 pandemic (May 2020).
It is worth noting that May saw drops in wages in a very wide range of industries. Slower YoY growth in nominal wages between April and May was seen in 11 out of 15 industries listed in GUS’s press release. Those industries account for 87% of all jobs in the business sector. The YoY drop in wages is connected with a MoM drop in pay. The MoM drop in pay seen in May is a usual seasonal fluctuation. The May drop was, however, one of the biggest on record based on available time series data. It is hard to say unequivocally whether the drop was caused by relatively high MoM growth in wages in April (i.e. high base effect) or whether it is the start of a downward trend in wage growth.
Growth in employment below expectations
Employment growth in the business sector slowed to 2.4% YoY in May from 2.8% in April, running below consensus and our forecast (2.6%). Employment dropped by 5.0k MoM. According to the press release from GUS, the decline in average employment in May 2022 was accounted for, among other things, by redundancies, non-renewal of fixed-term contracts on their expiry, and higher absence rates due to statutory sick pay. We believe that the trend of slowdown in employment growth will become stronger in the coming months due to lower demand for labour related to our expectation of a slowdown in economic growth.
The slowdown in employment growth and the YoY real wage drop in the business sector contributed to real wage fund growth in the business sector (the product of employment and average wage adjusted for price changes) dropping to 2.1% YoY from 4.4% in April. Today’s figures represent downward risk to our forecast of consumption picking up in Q2 (to 10.0% YoY from 6.6% in Q1). It will be possible to assess this risk more accurately after we get to know retail sales figures for May to be released tomorrow.
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 increased by 15.0% YoY in May compared to 12.4% in April (downward revision from 13.0%), running below our forecast (18.0%) and close to the market consensus (15,3%). The decline in growth is all the more surprising as it occurred despite the statistical effect of a favourable difference in the number of working days (in April the number of working days was one day lower than in 2021, while in May it was two days higher than a year ago). Seasonally-adjusted industrial production shrank by 1.7% MoM in May (the second consecutive monthly decline in production).
The main factor contributing to the slowdown in total production growth between April and May (by 1.2 pp) was a decline in the “Electricity, gas and water production and supply” category from 28.2% YoY in April to 12.1% in May. In our opinion, strong fluctuations in growth in this category may be related to difficulties encountered by the GUS in estimating the deflator (i.e. the change in prices) in the conditions of the currently observed rapid growth in energy prices.
In May, production accelerated in categories where sales are mostly export-oriented (13.5% YoY in May vs. 5.3% in April). Such a trend would be consistent with May's business survey results (PMI), which signalled that the decline in orders from abroad slowed down slightly (see MACROpulse of 1/6/2022). However, we expect exports in Poland to slow down in the coming quarters as the economic growth in the Eurozone weakens in line with our expectations. In May, we also saw an acceleration of production growth in construction-related industries (20.2% YoY vs. 16.9% in April), but this could be caused mainly by favourable calendar effects.
GDP growth slowing down in Q2
Today's industrial production data is yet another sign of the strong slowdown we’ve 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 tomorrow's release of retail sales and construction- assembly production data for May.
A MoM decline in seasonally adjusted industrial production in April and May signals a risk that production as well as industrial value added will be lower in Q2 than in Q1. In our opinion, the probability of a so called technical recession (a decline in seasonally adjusted GDP for at least two quarters in a row) in Q2 remains low, as economic growth is supported by continued strong consumer demand boosting value added in services.
In our opinion, today’s data is slightly negative for the PLN and yields on Polish bonds.