Wage growth accelerates again

In accordance with the GUS data published today, nominal wage growth in the sector of businesses employing more than 9 employees increased from 12.7% YoY in August to 14.5% YoY in September, running above the market consensus (13.0%) and our forecast (12.5%). In real terms, after adjusting for price changes, wages in businesses dropped by 2.3% YoY in September vs. a 3.0% drop in August.

The marked acceleration of wage growth in September indicates that the scenario expected by us and the market of a sustained return of wage dynamics to a short-term downward trend after the temporary deviation from this trend recorded in July 2022 has not materialised (see MACROpulse of 20 September 2022). According to the GUS press release, the increase in average wages in September vs. August was due to, among other things, payments of quarterly bonuses, length-of-service bonuses, as well as salary increases and bonus payments due to inflation. This means that, as in August, one of the main factors driving wage growth was rising inflation, reducing the purchasing power of wages and intensifying wage pressures.

Data on wage growth in September indicates that higher wage dynamics in the “manufacturing” sector was the main source of the increase in total wage growth (12.6% YoY in September vs. 9.8% in August; the contribution to increase of total wage dynamics was 0.7 pp). In addition, strong increases in wage growth were recorded in the “mining and quarrying” (24.5% YoY in September vs. 13.4% in August) and “electricity, gas and water production and supply” (23.2% YoY vs. -2.3%) categories. The evolution of wages in these two industries pushed the wage growth in the sector of businesses up by 0.3 pp and 0.6 pp respectively between August and September; in total it accounted for 49% of the increase in annual wage growth across the sector of businesses. This signals that the aforementioned wage pressure is particularly effective in companies controlled by the State Treasury. Today's payroll data from the enterprise sector therefore indicates that the acceleration in wage growth is broad-based and that the slowdown in wage growth in this sector and the economy as a whole in the coming months is likely to be less than we expected. What supports this assessment is the data on business sentiment in the corporate sector data published yesterday by the NBP (Quick Monitoring), indicating continued strong wage pressures, which are broad-based. We therefore see a significant upside risk to our Q4 consumption growth forecast (0.5% YoY vs. 1.1% in Q3).

Downward trend for employment growth begins

Employment growth in the enterprise sector went down to 2.3% YoY in September vs. 2.4% in August, running below the market consensus (2.4%) and our forecast (2.5%). In monthly terms, the number of employed fell by 8.8k. In accordance with the GUS press release, the average rate of employment in September 2022 fell, among others, due to redundancies in factories and expiring contracts for specified periods which were not renewed, just as it was the case in August. We believe that the slowdown of employment growth expressed in annual terms will continue in the months to come due to a lower demand for workforce related to the economic growth slowdown that we expect. This conclusion is supported by the results of business sentiment surveys for enterprises (PMI, GUS publications), which indicate that the employment decline in the manufacturing and construction sectors is highly likely to continue in the months to come. However, due to the continuing, historically-high rate of vacancies across the economy (as indicated by GUS data for Q2 2022) and a stable, relatively high percentage of companies reporting vacancies (over 40%) that was indicated by the NBP’s Quick Monitoring results, we expect the employment decline among the enterprises in the months to come to be gradual.

A slower growth in employment combined with a slowdown of real wage decline in the enterprise sector resulted in an increase in the real wage fund growth rate in the enterprise sector, the rate being the product of employment and average wage adjusted for changes in prices, to -0.1% YoY in September vs. -0.7% in August. Consequently, the real wage fund in Q3 rose by 0.6% YoY comparing to 2.1% in Q2. The wage fund data support our forecast in which consumption will slow down strongly in Q3, to 1.1% YoY vs. 6.4% in Q2.

Strong growth in industrial production in export-driven and capital goods sectors

In accordance with GUS data, growth of industrial production sold by businesses having more than nine employees slowed to 9.8% YoY in September from 10.9% in August, running above market consensus (8.8%) and slightly above our forecast (9.7%). Seasonally adjusted industrial production grew by 0.3% MoM in September compared to 0.7% in August. This means that September was the third month in a row to see growth in industrial production.

What is particularly worth noting about the breakdown of industrial production is that growth in export-driven sectors picked up to 20.0% YoY in September from 17.3% in August. Excluding the period when production growth was higher due to low base effects related to the pandemic (March-June 2021), September production growth in export-driven sectors was the highest on record in a series since 2009. In our opinion, industrial production in export-driven industries is supported by a reduction in production backlogs combined with an easing of supply constraints (shortages of raw materials and components). This is conductive to stabilizing production despite a smaller inflow of current orders. Furthermore, production growth in export-driven branches was driven up by the shift of dates of summer holiday breaks in car factories comparing to 2021. This translated into production growth in the “vehicles, trailers and semi-trailers” category going up from 39.9% YoY in August to 46.5% in September. Production growth increased in construction-related sectors (from 9.3% in August to 9.7% in September), but decreased in other categories (from 8.0% to 3.9%).

Also noteworthy is the growth in the production of capital goods to 29.1% YoY in September vs. 22.6% in August. Excluding the period when production growth in this category was higher due to pandemic-related low base effects (March–June 2021), the September capital goods production growth in export-driven sectors was the highest on record in a series since 2009. That growth correlates with the rate of growth in medium-sized and large companies’ (employing at least 50 staff members) investments in transportation. Therefore, the data on the production of capital goods indicates a boost in terms of 50+ companies’ investments. Due to strong supply-side limitations seen in the automotive industry over the past couple of quarters, the transportation means purchases carried out over the last couple of months may result from investment decisions taken several quarters ago. Consequently, in our opinion, the data indicating at the acceleration in the production of capital goods should not be interpreted as a signal of acceleration of growth in enterprises’ investments in subsequent quarters. This conclusion is consistent with the results of NBP's Quick Monitoring, which are indicative of a strong deterioration of the investment climate among private companies in Q3 and, for the first time since the outbreak of the pandemic, a negative outlook for growth in enterprises’ investment expenditures for the coming quarter.

Moderate slowdown in economic growth in Q3

Growth in seasonally adjusted industrial production seen in Q3 and data on business activity in Q3 released so far signal low likelihood of Poland entering a so-called technical recession, understood as seasonally adjusted GDP falling for two quarters in a row, in Q2 and Q3. The data on the labour market and industrial production for September released today support our GDP growth forecast for Q3 (3.9% YoY vs. 5.5.% in Q2). The data is also in line with our forecast of the MPC continuing the interest rate hiking cycle in November and December.

We believe that today’s data is slightly positive for the PLN and yields on Polish bonds.

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