Wage growth impacted by calendar effects

According to GUS data published today, nominal wage dynamics in the sector of enterprises employing above 9 people amounted to 6.8% YoY in August vs. 7.4% in July, running below our forecast (7.0%) and above the market consensus (6.7%). In real terms, corporate wages, adjusted for the changes in prices, rose by 3.8% YoY in August vs. 4.4% in July. The decrease in the annual wage dynamics in August compared to July resulted from the statistical effect in the form of an unfavourable difference in the number of working days (in July the number of working days was 1 day higher from 2018 while in August 2019 it was lower by 1 day than the year before) which lowered the wage dynamics of workers paid by the piece. Another factor conducive to lower wage dynamics in August were the last year high base effects in some branches of the corporate sector (i.e. in energy and transport).

The announcement of a sharp increase of minimum wage will limit wage growth

6-month rolling average of the annual wage dynamics amounted to 6.7% in August and was the lowest since December 2017. We maintain our view that despite elevated inflation expectations resulting from higher dynamics of food prices (see MACROmap of 8/7/2019), the wage growth is hardly likely to accelerate significantly in the coming months. The wage growth potential will be limited by continuously low inflation in Poland’s major trade partners (pressure on enterprises’ markups), launch of the Employee Equity Schemes and the expected abolition of the limitation of the annual base for the assessment of pension and disability benefit contributions (so-called 30-fold) starting from 2020 (increase of non-wage costs of labour), investments implemented by companies to reduce labour intensity of production (to increase productivity), and the announced sharp increase of the minimum wage in January 2020 (by 15.6%).

Surprisingly sharp decrease in employment

According to GUS data, the employment growth rate in the enterprise sector dropped to 2.6% YoY in August vs. 2.7% in July, running below our and the market expectations (2.7%). In MoM terms, employment decreased by 7.6k in August, which was the biggest decline recorded for this month since 2011. So far the main factor limiting corporate employment growth was the shortage of skilled labour. However, the sharp decrease in employment in August signals that tthe importance of restructuring as a factor impacting on the demand for labour is growing. In our view, large companies are now getting ready for a significant increase in the costs of labour due to the launch of the EES and abolition of the so-called 30-fold. We expect that the shock in the form of the announced very high cumulative increase of the minimum wage (from PLN 2250 in 2019 to PLN 4000 in 2023) will strengthen the restructuring process in medium-size and large enterprises. Consequently, we maintain our forecast in which the annual employment rate growth in the corporate sector will gradually slow down in the coming months (see MACROmap of 9/9/2019).

Acceleration of consumption growth in Q3

We estimate that the real wage fund growth rate (the employment times the average salary) in enterprises dropped to 6.5% YoY in August from 7.2% in July and 7.1% in Q2. Despite the decrease in the real wage fund growth rate between Q2 and Q3, we expect private consumption dynamics to slightly increase to 4.6% YoY in Q3 vs. 4.4% in Q2, due to the payment of social benefits and strong labour market. Today’s reading of consumer sentiment in September 2019 (the current consumer confidence index and indicator of propensity to make major purchases are record high) support our forecast of consumption in Q3.

In our view, today’s data on salaries and employment in the enterprise sector are neutral for PLN and yields on bonds.

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