Wage growth returned to the medium-term trend
According to GUS data published today, nominal wage dynamics in the sector of enterprises employing above 9 people amounted to 7.4% YoY in July vs. 5.3% in June, running above our forecast (7.1%) equal to the market consensus. In real terms, corporate wages, adjusted for the changes in prices, rose by 4.4% YoY in July vs. 2.6% in June.
The sharp increase in the annual wage dynamics in July compared to June resulted from the statistical effect in the form of a favourable difference in the number of working days (in June the number of working days was 2 days lower from 2018 while in July 2019 it was higher by 1 day than the year before) which increased the wage dynamics of workers paid by the piece. Another factor conducive to higher wage dynamics in July was the abatement of the effect of the shift of variable remuneration in mining which has contributed to a marked decrease in total wage dynamics in June. In addition, the nominal wage growth rate was supported by the continuing wage pressure. In effect, the wage dynamics returned in June to a level consistent with the medium-term trend.
We do not expect any further sharp acceleration of wage growth
We maintain our view that higher inflationary expectations resulting from higher dynamics of food prices will be conducive to a weak increase in the corporate wage growth rate until the end of 2019 (see MACROmap of 8/7/2019). We believe, however, that the probability of a strong acceleration of wage growth in H2 2019 is low. The wage growth potential in the coming quarters will be limited by continuously low inflation in Poland’s major trade partners (pressure on enterprises’ margins), launch of the Employee Equity Schemes and the expected abolition of the limit on annual base retirement and pension insurance contribution (so-called 30-fold) starting from 2020 (increase of non-wage costs of labour), and investments implemented by companies to reduce labour intensity of production (to increase productivity). This view is consistent with the results of business surveys (NBP Quick Monitoring). They indicate that Q3 was the second consecutive quarter in which both the percentage of companies feeling stronger wage pressure and the percentage of companies contemplating significant wage increases in the subsequent quarter have decreased.
Employment growth slower as expected
According to GUS data, the employment growth rate in the enterprise sector dropped to 2.7% YoY in July vs. 2.8% in June, running in line with our and the market expectations. In MoM terms, employment increased by 3.4k in July vs. a 13.6k increase in June. We expect the trend towards a slight increase in month-on-month employment to continue into subsequent months. However it will weaken due to the persistent barrier in the form of shortage of skilled labour. Consequently, the annual employment rate growth will gradually slow down (see MACROmap of 15/7/2019).
Slower private consumption growth in Q3
We estimate that the real wage fund growth rate (the employment times the average salary) for the enterprise sector rose to 7.2% YoY in July from 5.4% in June and 7.1% in Q2. Despite the stabilization of the real wage fund growth rate between Q2 and Q3, we expect private consumption dynamics to slow down to 4.5% YoY in Q3 vs. 5.0% in Q2. That is because the recovery of consumption in Q2 was supported by the payment of additional benefits to pensioners.
In our view, today’s data on salaries and employment in the enterprise sector are neutral for PLN and yields on bonds.
