Real wages go up again

According to GUS data published today, nominal wage dynamics in the sector of enterprises employing above 9 people rose to 3.6% YoY in June vs. 1.2% in May, running clearly above the market consensus (1.2%) and our forecast (1.6%). In real terms, corporate wages, adjusted for the changes in prices, increased by 0.2% YoY in June vs. a 1.6% decrease in May. According to GUS statement, higher wage dynamics in June resulted from the payment of bonuses, quarterly, annual and jubilee awards, and retirement benefits as well as restoration of pre-pandemic salary levels in some companies. The last year’s low base effect was also conducive to higher wage dynamics (see MACROpulse of 17/7/2020).

Wage dynamics will not return soon to pre-pandemic levels

We believe that the wage growth rate has reached its local minimum in Q2. In subsequent months we expect its weak increase as furloughed employees will return to work and the situation in the labour market normalizes. However, it continues being adversely impacted by measures taken by companies to reduce the cost of labour (revision of plans concerning pay rises and reduction of their nominal level). We therefore maintain our view that wage dynamics will not have returned to pre-pandemic levels in the horizon of our forecast (namely before the end of 2021 - see MACROmap of 8/6/2020).

Employment will increase at a slow pace

According to GUS data, dynamics of employment in the sector of enterprises decreased to -3.3% YoY in June vs. -3.2% in May, running visibly above the market expectations (-3.9%) and our forecast (-4.0%). In MoM terms, employment increased by 11.9k in June vs. a decrease by 84.9k in May, recording its first increase since February 2020. According to GUS statement, the reason for the increase in employment in June in monthly terms was re-employment and restoration of pre-pandemic working times. The potentially big importance of this second factor is indicated by the data of the Ministry of Family, Labour and Social Policy showing that only under the solutions offered by the anti-crisis shield, financed by the Guaranteed Employee Benefits Fund, more than 1190k employees (as at 2 July) are covered by reduced working time. However, further reduction of employment by some companies (non-extension of term contracts and termination of employment contracts) had opposite impact. We maintain our forecast in which the unemployment rate will amount to 7.5% in Q4 2020 vs. 5.2% in Q4 2019 and will decrease to 6.1% in 2021, staying markedly above the pre-pandemic level. This view is consistent with the NBP July inflation report released today in which the pandemic has intensified the problem of labour market mismatch and consequently increased the equilibrium unemployment rate. This implies that some employees made redundant in the crisis-affected sectors will not find employment due to lack of the required qualifications and skills and the time needed to acquire them.

Solid labour market data support consumption

The high volatility of the data reported in recent months, which largely results from the method of recording persons covered by the freeze of employment in statistics, is responsible for the fact that they are not fully reliable for assessing current labour market trends. In particular, due to the a/m factors distorting the employment data, the dynamics of the wage fund (employment times average wage) is also greatly disturbed and their usefulness for assessing the outlook for consumption is currently very low. Nevertheless, today’s data that are visibly better from the market consensus signal that the expected by us recovery in consumer demand starting from Q3 may be somewhat faster than we anticipated. We thus see an upside risk to our scenario in which consumption will decrease by 4.2% in 2020 YoY vs. a 3.9% increase in 2019 and will increase by 4.4% in 2021.

Today’s better-from-the-market-consensus data on wages and employment in the enterprise sector are slightly positive for PLN and bond yields, we believe.

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