Further decrease in wage growth despite the reopening of the economy

According to GUS data published today, nominal wage dynamics in the sector of enterprises employing above 9 people dropped to 1.2% YoY in May vs. 1.9% in April, running in line with the market consensus and below our forecast (2.4%). In real terms, corporate wages, adjusted for the changes in prices, decreased by 1.6% YoY in May vs. a 1.4% decrease in April. According to GUS statement, it resulted from further wage reductions and the payment of so-called down-time wages. GUS suggested that wage growth may have also been limited by the smaller than in April scale of quarterly, annual, and discretional bonus payments. However, it is worth noting that the scale of bonuses and rewards payments have always been low in May; therefore, we believe that the scale of this factor’s impact on the annual wage growth was limited.

Wage dynamics will not return to pre-pandemic levels for a long time

We expect that in subsequent months wage dynamics will continue 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). The scale of the decrease in wage dynamics is limited by severance payments for employees made redundant. Nonetheless, this effect will be increasingly weaker; therefore, we forecast that wage growth will reach its local minimum in Q2 and will be showing a very weak upward trend in subsequent quarters, as furloughed employees return to work and the situation in the labour market normalizes. Despite its forecasted increase, we believe that in 2021 it will remain at relatively low levels.

Monthly decrease in employment has visibly slowed down

According to GUS data, employment in the sector of enterprises decreased to -3.2% YoY in May vs. -2.1% in April, running below the market expectations (-2.6%) and our forecast (-2.7%). In MoM terms, employment decreased by 84.9k vs. a decrease by 152.9k in April. According to GUS statement, further decrease in employment dynamics resulted i.a. from the termination and non-extension of term contracts (including due to the epidemic), reduction of working time, and termination of employment contracts. In addition, due to the GUS-applied methodology, conducive to lower employment dynamics was also the fact that employees were claiming care and sick benefits and were taking unpaid leaves.

The risk of slower recovery in consumption is growing

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 aforementioned 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 signal that the expected by us recovery in consumer demand starting from Q3 may be slower than we anticipated. According to our revised profile, the unemployment rate will be growing in the coming quarters to reach its local maximum in Q4 at a level of 7.5%. In 2021 we forecast a gradual decrease in unemployment rate to 6.1% in Q4.

Today’s data on salaries and employment in the enterprise sector are neutral for PLN and bond yields, we believe.

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