Employment and wage dynamics continue to show a downward trend
According to GUS data published today, nominal wage dynamics in the sector of enterprises employing above 9 people increased to 6.2% YoY in December vs. 5.3% in November, running slightly above the market consensus (6.1%) equal to our forecast. In real terms, corporate wages, adjusted for the changes in prices, rose by 2.7% YoY in December vs. a 2.6% increase in November.
In December, the three-month rolling average for the annual nominal wage dynamics in enterprises amounted to 5.8%, hitting the lowest level since July 2017. This strongly supports our view that the decreasing capacity utilization and increasingly conservative wage policy of companies responding to unfavourable regulatory changes in the Polish labour market have had a growing negative influence on nominal wage dynamics in recent months (see MACROpulse of 18/12/2019). The results of an annual survey of the wage and employment plans of companies in 2020, published yesterday by Grant Thornton, also point to a sustained downward trend in annual wage growth. They indicate a sharp decline (to 5-year low) of the percentage of small and medium-size companies planning real pay increase in 2020. This is in line with our scenario of stable wage dynamics in the whole economy in 2020 despite the sharp increase in the minimum wage (see MCROmap of 20/1/2020).
Our forecast of wage growth in 2020 is also strongly supported by today’s data on employment in the enterprise sector in December (up by 2.6% YoY, unchanged compared to November). In MoM terms, employment increased by 1.2k in December vs. a 11.5k increase in November. Low increase in MoM employment in December supports our view that subsequent months (with the exception of January 2020 when the annual review of data on employment in microenterprises will be followed by a surge in employment in companies employing more than 9 persons) will see the stagnation of employment in the corporate sector. This stagnation will result from the ongoing restructuring processes caused by growing costs of labour, including the sharp increase in the minimum wage.
Real wage fund growth in Q4 2019 the slowest since Q4 2015
We estimate that the real wage fund growth rate (the employment times the average salary) in enterprises increased to 5.4% YoY in December vs. 5.3% in November. In Q4 2019 the real wage fund rose by 5.5% YoY, showing the lowest dynamics since Q4 2015. This strongly supports our forecast in which the consumption growth rate decreased to 3.8% in Q4 2019 vs. 3.9% in Q3. In subsequent quarters of 2020 we expect further gradual decrease in consumption dynamics (see MACROmap of 9/12/2019).
Sharp decrease in construction-assembly production in December
According to GUS data, the construction-assembly production dynamics dropped by 3.3% YoY in December vs. a 4.7% decrease in November, running clearly below our forecast (a 0.7% increase) and the market consensus (0.6% YoY). The increase in the annual dynamics of construction and assembly production in December compared to November resulted mainly from the statistical effect in the form of a favourable difference in the number of working days (in November 2019 the number of working days was 1 day lower from 2018 while in December 2019 it was 1 day higher than the year before). Seasonally-adjusted construction-assembly production decreased by 3.5% MoM in December.
The structure of data on December production shows that construction activity continues to be under a strong negative impact of the end of cycle in public investments (sales dynamics in the category “construction of civil engineering facilities” continued to be low and amounted to 0.4% YoY vs. a 7.0% decrease in November). We maintain our view that in the coming quarters a factor limiting the activity in the category of "construction of civil engineering facilities" will be the expected by us deep decline in local government investments (see MAKROmap from 9/12/2019). Our expectations are supported by a fall in production in the "specialized construction works" category in December by 4.1% YoY against a decrease by 12.8% YoY in November which we interpret as a signal confirming a sustained slowdown in growth of construction-assembly production (see MACROpulse of 23/12/2019). We maintain our view that in the coming quarters high activity in housing will remain a factor limiting the scale of the slowdown in output growth. In the next MACROmap we will discuss at greater length the investment plans of local government units and their impact on LGU finances.
In our view, today’s data on construction-assembly production are negative for PLN and yields on bonds.
