Salary growth rate much higher than expected

In accordance with the GUS data published today, nominal salary growth rate in the sector of companies employing more than 9 employees rose from 4.5% YoY in February to 8.0% YoY in March, running markedly above our forecast which was consistent with the market consensus (5.5%). In real terms, after the adjustments made to take into consideration the changes in prices, salaries in companies rose by 4.7% YoY in March (the highest growth rate since May 2019) comparing to a 2.0% increase in February. Last year’s low base effect combined with a favourable difference in the number of business days (in February 2021, the number of those days was the same as in February 2020, while in March 2021 there was one business day more than in March 2020) contributed to the increase in the salary growth rate between February and March. Furthermore, as the GUS has noted, the increase in the salary growth rate in March was driven by the payment of annual, quarterly, discretionary, incentive, and Easter bonuses, and also by the payment of remuneration for overtime work, which, in our opinion, explains to a great extent why the said growth rate was much higher than expected. This means that the factors that largely contributed to the unexpectedly strong salary growth rate increase (including the ones related to the third wave of the COVID-19 pandemic that had caused the number of employees absent from work to grow) were temporary. We expect this factor to boost the salary growth rate in April 2021, too, due to a relatively high number of individuals who are self-isolating or quarantined. Despite the impact of temporary factors referred to above, the data on salaries in the enterprise sector published today is indicative of an upward risk for our forecast concerning the increase in wages across the entire economy (including state administration units) in 2021 (3.1%).

Employment in March falls slightly, while the wage fund growth clearly accelerates

In accordance with the GUS data, the employment growth rate in the enterprise sector in March stood at -1.3% YoY comparing to -1.7% in February, running below our forecast (-1.2%), but in line with the market consensus. In monthly terms, the number of employed fell by 3.7 thousand, the drop resulting, in our opinion, from downward adjustments to working time bases and an increase in the number of individuals receiving sickness benefits and carer’s allowance in relation to the third wave of the pandemic and the related tightening of restrictions. We maintain our scenario, in which we expect a significant, lasting growth of employment in enterprises to take place in the second half of 2021, i.e. when the negative impact of the employment adjustments ceases as a result of the labour market being “unfrozen” (abatement of the positive impact of the first financial shield on employment).

An increase in the wages and employment growth rates combined with a significant inflation growth in March (see MACROpulse of 15/04/2021) resulted in a strong increase in the real wage fund (the product of employment and average salary in the enterprise sector) from 0.3% YoY to 3.3%. This data is indicative of a slight upward risk for our consumption growth forecast for Q1 2021 (0.0% YoY), but it will only be possible to assess that risk more accurately when the data on retail sales and consumer sentiment in March is published, which is planned for tomorrow.

Excellent industrial production data

In accordance with the GUS data, the volume of sold production of industry in enterprises employing more than 9 people increased by 18.9% YoY in March vs. +2.7% in February, running above the market consensus (13.1%) and our forecast (14.2%). Last year’s very low base effect (in March 2020, there was a significant MoM decline in production caused by the outbreak of the COVID-19 pandemic, related restrictions, and global supply chain disruptions) was the main reason behind the strong increase in the industrial production dynamics between February and March. The favourable difference in the number of business days referred to above also boosted the annual production growth in March. Seasonally-adjusted industrial production increased by 2.3% between February and March (the strongest growth since September 2020). The data is indicative of a strong recovery in activity in the Polish industry.

Exporting sectors still report the highest growth rates

Like in the preceding months, also in March activity accelerated most in the categories with a significant share of export sales in the revenues. We estimate that industrial production rose by 38.2% YoY in March (vs. +6.7% in February) in those categories where the share of exports in sales was over 50%. The said categories accounted for more than 50% of the total industrial production growth (their contribution towards the annual growth was 11.9 pp.). In turn, the output growth in construction-related sectors stood at 18.8% YoY in March vs. 1.7% in February, while in other branches (except for exports- and construction-related categories) production increased by 8.4% YoY comparing to 0.4% in February. The data shows that the recovery in global trade remains the main factor driving industrial production in Poland up, and the leading economic indices published in the past weeks indicate that a high demand for Polish exports is highly likely to continue in the months to come.

How strong is the negative impact of supply constraints on production?

The much higher-than-expected increase in industrial production in March comes as a big surprise in the context of bottlenecks in global supply chains, i.e. shortages of raw materials, materials and intermediate goods, signalled in business surveys. These barriers result in rising output prices (see MACROmap of 12/4/2021), which is also reflected in accelerated price growth in manufacturing reaching 3.3% YoY in March, the highest level since July 2018 (the low base for raw material prices last year also being an important reason for the YoY price growth acceleration in March). As a consequence, one could view as quite likely a scenario in which the significantly higher-than-expected output growth in March was realised thanks to a reduction in inventories, which would neutralise the positive impact of higher industrial output on GDP. However, this hypothesis cannot be verified until further data on sentiment in the sector of enterprises and GDP structure in Q1 is published. In the alternative scenario, in which supply-side barriers constrain industrial activity to a lesser extent than signalled by the business surveys, the contribution of industrial production to value added growth in 2021 as a whole may be significantly higher than we expected. We therefore interpret today's March production data as an upward risk signal for our 2021 GDP growth forecast (3.6%).

Today's data on industrial production, employment and wages in the sector of enterprises is positive for the PLN and bond yields.

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