No wage explosion in sight
In accordance with GUS data published today, nominal wage dynamics in the sector of enterprises employing more than 9 persons rose to 7.1% YoY in April vs. 5.7% in March, running above the market consensus (6.6.%) and our forecast (6.7%). This has confirmed our view from the month before that the sharp decline recorded in wage dynamics in March was temporary and resulted mainly from the unfavourable statistical effects (see MACROpulse of 18/4/2019). Real, adjusted for the changes in prices, corporate wages rose by 4.8% YoY in April vs. 3.9% in March.
In our view, higher wage growth in April resulted from the last year's low base effects, i.a. in the categories "electricity, gas, steam and hot water supply”, "accommodation, catering” and "information and communication”. Higher wage growth rate in April was also supported by the statistical effect in the form of a favourable difference in the number of working days (in March the number of working days was 1 day lower than in 2018 while in April 2019 it was 1 day higher than the year before), boosting the wage dynamics of employees engaged in piecework.
The continuing in line with its medium-term average (ca. 7.0%) moderate wage growth is consistent with our downward revised forecast assuming a slight decrease of wage dynamics for the entire economy in 2019 (down to 7.0% YoY vs. 7.2% in 2018 – see MACROmap of 20/5/2019). This scenario is supported by the last week's reading of wage dynamics in the national economy which increased merely to 7.2% YoY in Q1 vs. 6.2% in Q4 2018 (we expected an 8.2% increase). The main factors limiting 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 by the government in the Convergence Program Update abolishment of the limit on the annual base retirement and pension insurance contributions (so-called thirtyfold) starting from 2020.
More Ukrainians in the Polish labour market
According to GUS data, corporate employment dynamics dropped to 2.9% YoY in April vs. 3.0% in March, running below the market consensus consistent with our forecast (3.0%). In monthly terms, employment decreased by 1.2k. It has been the first monthly decrease in employment since 2015. In our view, the decrease in employment dynamics is largely due to the ongoing supply-side barrier in the form of shortage of skilled labour. Consequently, we expect that the annual employment dynamics will continue to gradually decrease in the coming quarters, continuing the trend observed in H2 2018.
The fears of a mass outflow of Ukrainians to Germany after the enforcement of changes in its migration laws in 2020 are not being confirmed. In accordance with ZUS data, the number of Ukrainians paying contributions to ZUS increased by 31.7% YoY in Q1 vs. a 32.9% increase in Q4 2018. Also, the percentage of Ukrainians in the structure of foreigners paying contributions to ZUS rose to 74.6% in Q1 vs. 73.8% in Q4 2018. The continuing, albeit slower, inflow of employees from Ukraine to Poland is an additional factor limiting the wage growth rate in the economy.
Private consumption to accelerate in Q2
We estimate that the real wage fund growth rate (employment multiplied by average wages) in the corporate sector amounted to 7.9% YoY in April vs. 8.8% in the whole Q1 2019. Combined with the payment of additional benefits to pensioners in May 2019, it supports our forecast of private consumption dynamics in Q2 (5.5% YoY vs. 4.5% in Q1).
Today's data on corporate wages and employment are neutral for PLN and bond yields, we believe.