Surprisingly low wage growth

In accordance with GUS data published today, nominal wage dynamics in the sector of enterprises employing more than 9 persons amounted to 5.7% YoY in March vs. 7.6% in February, running significantly below our forecast (7.2%) equal to the market consensus. Real, adjusted for the changes in prices, corporate wages rose by 3.9% YoY in March vs. 6.3% in February.

The main factor behind the lower wage growth in March was the shift of variable remuneration in mining, which temporarily boosted the wage growth rate in February. Wage dynamics were also limited by statistical effects resulting from the unfavourable difference in the number of working days, reducing the wage growth for employees doing piece work. Nonetheless, the scale of the slowdown of nominal wage growth in March was a big surprise. We believe that it is a result of shifts in the payment of bonuses in certain branches rather than a sustainable reduction of wage pressure. The publication of detailed data on wage structure in the Statistical Bulleting will enable us to verify this hypothesis.

We maintain our scenario in which the nominal dynamics of wages in the whole economy will increase only slightly in 2019. The main factors which will limit wage growth in the coming quarters will be continuing low inflation in Poland's major trading partners (hampering increase of markups in the companies of the tradable goods sector), launch of Employee Equity Schemes (leading to increase in non-wage costs of labour), restructuring processes (investments carried out by companies intending to limit labour intensity of production), and the announced yesterday by the government in the Convergence Program Update abolishment of the limit on the annual base retirement and pension insurance contributions starting from 2020.

Solid growth in employment

According to GUS data, corporate employment dynamics rose to 3.0% YoY in March vs. 2.9% in February, running above our forecast in line with the market consensus (2.9%). In monthly terms, employment increased by 15.6k. It was the second highest March employment growth. The marked increase in employment in March occurred despite the ongoing supply-side barrier in the form of shortage of skilled labour. This may point to further increase in the participation rate (especially among people entitled to old-age pension benefits). We maintain our view that due to the afore-mentioned supply-side constraints, the annual employment dynamics will gradually decrease in the coming months, continuing the trend observed in H2 2018.

At the same time, we should not fear a mass outflow of Ukrainians to Germany once changes in its migration laws enter into force in 2020. In accordance with the report of the Polish-Ukrainian Chamber of Commerce, nearly a half of the Ukrainians who had previous experience working in Poland wish to move permanently abroad out of which 61% respondents prefer Poland as their destination. According to the surveyed Ukrainian citizens, Poland's advantages include: geographic location, positive experiences, level of wages, and lack of language barrier. These tendencies will support employment growth and will slow down wage growth in Poland in the medium term.

Strong labour market and fiscal changes are positive for consumer sentiment

We estimate that the real wage growth rate in the corporate sector amounted on average to 5.6% YoY in Q1 vs. 5.7% in Q4 2018. This supports our forecast of lower private consumption growth in Q1 (4.8% YoY vs. 4.9% in Q4 2018). Due to the government-announced payment of additional benefits to pensioners in May 2019, we expect a sharp temporary acceleration in consumption to 5.5% YoY in Q2. The strong labour market and fiscal changes are conducive to further improvement of consumer sentiment. In April, the GUS business sentiment indicator concerning the expected change in household's financial standing over a year reached the highest level in the survey history.

Today's data on corporate wages and employment are neutral for PLN and bond yields, we believe.

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