Weaker production data consistent with Polish economy’s “soft landing”

Wage growth in a downward trend

In accordance with the GUS data published today, nominal wage growth in the sector of companies employing more than 9 employees fell from 14.5% YoY in September to 13.0% YoY in October, running below the market consensus (13.8%) and our forecast (14.2%). In real terms, after adjusting for price changes, wages in businesses fell by 4.1% YoY in October vs. -2.3% in September.

Wage growth structure data for October shows that it was primarily a slower wage growth in the manufacturing (11.2% YoY in October vs. 12.6% in September) that drove the total wage growth down. Wage growth also slowed down strongly in the “mining and quarrying” category (10.8% YoY in October vs. 24.5% in September) and the “electricity, gas, steam and air conditioning supply” category (11.5% YoY vs. 23.2%). The strong slowdown in those two sectors indicates that the effect of one-off payment of bonuses and allowances that boosted wages in September is likely to have faded.

Enterprise sentiment surveys’ results are indicative of the persistent wage pressure in a wide range of categories. Nonetheless, we are still of the opinion that the annual wage growth will follow a mild downward trend amidst the growing costs of companies' operations and the expected slowdown of economic growth.

The employment growth seems strong only on the surface

Employment growth in the enterprise sector increased to 2.4% YoY in October vs. 2.3% in September, running above the market consensus (2.2%) and our forecast (2.3%). In monthly terms, the number of employed grew by 7.1k, and it was the strongest growth for an October since 2016. However, in our opinion, the better-than-expected employment data does not signal any positive changes in trends in the labour market, and in fact is just an correction following weak September data. The previous month saw the strongest month-on-month employment decline for a September since 2001. Therefore, we do not change our forecast, in which we expect a further decline in the annual employment growth in the months to come given a lower demand for labour force that is connected with the economic growth slowdown that we expect to take place. GUS business sentiment survey results support this conclusion. In October, the seasonally-adjusted indicator describing the employment expected in a three-month horizon fell in all sectors under analysis except “transport and storage”, and reached the lowest value since the turn of 2020 and 2021.

A stronger growth in employment combined with a quicker slowdown of real wage growth in the enterprise sector resulted in a decrease 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, to -1.9% YoY in October vs. -0.1% in September and 0.6% in Q3. The wage fund data support our forecast in which consumption will slow down again in Q4, to 0.5% YoY vs. 0.8% in Q3.

Weaker production data consistent with Polish economy’s “soft landing”

In accordance with the GUS data, the growth of industrial production sold in enterprises employing more than 9 people decreased to 6.8% YoY in October compared to 9.8% in September, running markedly below the market consensus (7.8%) that was consistent with our forecast. Seasonally-adjusted industrial production fell by 0.3% MoM in October compared to a 0.3% growth in September. This means that it was the first decline in seasonally-adjusted production expressed in monthly terms since June 2022.

What is particularly worth noting about the breakdown of production is that quick growth continued in export-driven sectors (18.1% YoY in October vs. 20.0% in September).In our opinion, production in export-driven industries is supported by a reduction in production backlogs combined with an easing of supply constraints (with shortages of raw materials and components becoming less severe). Production growth slowed down in construction-related sectors (from 9.6% in September to 6.2%). The total industrial production growth in October was mainly driven down by a strong production slowdown in those sectors that are not driven by exports or related with the construction sector (from 3.9% YoY in September to 0.8% YoY).

The data on the labour market and industrial production for October released today have no impact on our GDP growth forecast for Q4 involving a further slowdown of GDP growth (0.8% YoY vs. 3.5% in Q3). This means that our "soft landing” scenario is materialising. In this scenario, GDP growth in Poland in 2023 will remain positive despite a significant slowdown (1.2% YoY vs. 4.5% in 2022 and 6.8% in 2021).

We believe that today’s data is slightly negative for the PLN and yields on Polish bonds.