Fade-out of one-off effects slowed wage growth
In accordance with GUS data released today, nominal wage growth in the sector of businesses having more than nine employees dropped to 12.7% YoY in August from 15.8% in July, running below market consensus (13.5%) and our forecast (13.8%). In real terms (adjusted for price changes), wages in businesses fell by 3.0% YoY in August compared to growth of 3.0% in July.
The slowdown in nominal wages is to a large extent accounted for by the fade-out of one-off effects (bonus payments), which markedly added to wage growth in August (see MACROpulse of 19.08/2022). According to the press release from GUS, the drop in wages between July and August is largely accounted for by payments of quarterly, semi-annual, and annual bonuses, rewards, incentives, Forest Service Day and Power Industry rewards, and additional one-off rewards in July. An analysis of the breakdown of wages shows that the slowdown in total wages was driven primarily by drops in wage growth in ‘mining and quarrying’ (13.4% YoY in August vs. 81.6% in July) and in ‘electricity, gas, and water manufacturing and supply' (-2.3% YoY in August vs. 33.2% in July). Wages in those two segments drove wage growth in the business sector down by 1.8 pp and 0.9 pp, respectively, between July and August. We believe that thus growth in wages is back on its medium-term trajectory and will stay on it in the coming months.
Labour market data signal stagnation in consumption
Employment growth in the business sector picked up to 2.4% YoY in August from 2.3% in July, running in line with market consensus (2.4%) and slightly above our forecast (2.5%). Month-on month, employment fell by 5.7k. According to the GUS press release, the decline in average employment in August 2022 is accounted for, among other things, by lay-offs and by non-renewal of fixed term contracts on their expiry. In the coming months, we expect a further slowdown in employment growth due to weaker demand for labour resulting from a slowdown in economic growth we expect to see.
Acceleration in employment growth and the decline in real wages in the business sector resulted in real wage fund growth in that sector (the product of employment and average wage adjusted for changes in prices) plunging to -0.7% YoY in August from 2.5% in July and 2.1% in Q2. Today’s data support our forecast expecting private consumption stagnation in Q3 (compared to growth by 5.5% in Q2).
The industry is flying on all three engines
In accordance with the GUS data, the growth of industrial production sold in enterprises employing more than 9 people increased to 10.9% YoY in August compared to 7.1% in July, running above the market consensus (9.9%) and below our forecast (11.5%). Industrial production growth was driven up between July and August by the statistical effect of a favourable difference in the number of working days (in July the number of working days was the same as in 2021, while in August it was one day higher than a year ago). Seasonally-adjusted industrial production increased by 0.7% MoM in August vs. 0.5% in July.
All three main industry segments contributed to the increase in production growth between July and August: export industries (17.3% YoY in August vs. 9.3% in July), construction-related ones (9.3% vs. 5.5%) and other categories (8.0% vs. 7.2%). Within industries with predominantly export-oriented sales, the categories 'motor vehicles, trailers and semi-trailers' and 'electrical equipment' were the main contributors (0.8 pp each) to the acceleration in total industrial production growth. The acceleration of production growth in the automotive industry was partly related to a different timing of the summer holiday break at car factories relative to 2021. The two categories that reduced the acceleration of total industrial production the most (by a total of 1.1 pp) were the manufacture of 'coke and refined petroleum products' and 'chemicals and chemical products. We believe that the decline in activity in these industries may have been linked to the strong increase in the prices of energy commodities, which are used in the production process.
Is the risk of technical recession declining?
The increase in seasonally adjusted industrial production recorded in July and August reduces the probability of a so-called technical recession (a decrease in seasonally adjusted GDP for at least two consecutive quarters) in Poland in Q2 and Q3 2022. Nevertheless, technical recession still remains our baseline scenario. A more accurate assessment of the economic growth in Q3 will be possible after tomorrow's release of data on construction & assembly production and retail sales.
We believe that today’s data is neutral for the PLN and yields on Polish bonds.