January production well below expectations
According to the GUS data, the volume of industrial production sold in businesses employing more than 9 employees expanded by 2.6% YoY in January compared with a gain of 1.0% in December, running below the market consensus (4.3%) and our forecast (5.5%). A statistical effect coming from a favourable difference in the number of working days between December and January (in December 2022, there was one working day less that in 2021, while in January 2023 there were two days more than a year ago) drove industrial production growth up. Adjusted for seasonal factors, industrial production contracted by 1.3% MoM in January.
In January, annual production growth increased in all three groups of businesses: in export-oriented sectors, with production rising by 9.5% YoY in January from 8.0% in December, in construction-related sectors (3.0% vs. 2.2%) and other sectors (-1.0% vs. -2.8%). As in the previous months, export-oriented sectors had the dominant contribution to the growth in total industrial production as activity in these industries was strongly supported by the reduction of production backlogs coupled with easing of supply constraints (less severe shortages of raw materials and components). Thus, we are seeing the continued high resilience of export-oriented sectors to the economic downturn experienced by Poland’s main trading partners and the relatively significant impact of the slowdown in domestic demand (in particular consumption) on sectors that are relatively strongly linked to the domestic market. We expect this situation to continue in the coming months. We further anticipate a marked acceleration in non-export-driven sectors to occur as late as H2 2023 when the real wage growth reaches a positive level and public investments co-financed from EU funds pick up pace substantially (see MACROmap of 13/02/203).
Increase in minimum wage drove wage growth up
In accordance with the GUS data published today, nominal wage growth in the sector of businesses employing more than 9 employees increased to 13.5% YoY in January, up from 10.3% in December, running above the market consensus (12.6%) and our forecast (12.5%). In real terms, after adjusting for price changes, wages in the enterprise sector fell by 3.1% YoY in January compared to a drop of 5.4% in December. The main drivers of the acceleration in nominal wage growth in annual terms were last year’s low base effects, the above-mentioned statistical effect related to the number of working days and the increase in the minimum wage in January 2023 from PLN 3,010 to PLN 3,490, which, according to our estimates, contributed to an increase in the annual growth of total wages between December and January by approx. 1.1 pp.
Wage growth structure data for January shows that it was primarily faster wage growth in ‘industrial manufacturing’ (12.2% YoY in January vs. 8.5% in December), as well as ‘trade; repair of motor vehicles’ (11.9% vs 6.7%) and ‘electricity, gas, steam and air conditioning supply’ (13.5% vs. 8.4%) that contributed to the increased overall wage growth. Today’s data is consistent with our assessment, according to which after a temporary increase in nominal wage growth in Q1 2023, in the following quarters it will return to a downward trend, which will also be observed in the case of the average wage in the entire economy. The main factors conducive to a slowdown in wage growth in the coming quarters will be the deepening economic slowdown, the strong drop in inflation, and the related decline in wage pressures in enterprises (see MACROmap of 6/02/2023) we expect.
Sharp slowdown in employment growth in micro-enterprises
Employment growth in the business sector dropped to 1.1% YoY in January from 2.2% in December, running below the market consensus (1.7%) and our forecast (1.8%). Compared to December 2022, employment increased by 25.4k in January. The sharp increase in the number of jobs was driven by the annual revision of data on employment in micro-enterprises (employing up to 9 people). Companies whose headcount exceeded 9 employees were ‘added’ to the class of entities employing at least 10 people in January and thus were included in the population surveyed by the GUS. Consequently, it is not justified to compare the annual employment growth rate in January 2023 and December 2022 and, consequently, the wage fund’s growth rate (material for drawing conclusions about trends in household consumption expenditures). A more comprehensive assessment of trends in employment will be possible after the release of data for February 2023. It is worth noting, however, that compared to the corresponding period of previous years, the increase in employment in MoM terms this January was the lowest since January 2015, excluding January 2021 (when a strong negative impact of the pandemic on employment in enterprises was recorded). In our opinion, this indicates that a significant slowdown in economic activity driven by the substantial rise in energy prices, deterioration in consumer sentiment and investment climate (in Q4 2022 the seasonally adjusted GDP was 3.7% lower than in Q1) contributed to a sharp slowdown in employment growth in micro-enterprises in H2 2022.
GDP in annual terms to drop in Q1
Today’s data on industrial production and the labour market signals a slight downward risk for our forecast of GDP decline in Q1 (by 0.8% YoY vs. a 2.0% increase in Q4 2022). It also indicates an increase in the likelihood of a continued decline in seasonally adjusted GDP in Q1 on a QoQ basis. A more comprehensive assessment of this probability will be possible after tomorrow’s publication of data on construction and assembly production and retail sales in January, as well as the economic situation of Poland’s main trading partners (PMI).
Despite worse-than-expected data on January’s industrial production, we stand by our ‘soft landing’ scenario for the Polish economy. In this scenario, GDP growth in Poland in 2023 will remain positive despite a significant slowdown (1.2% YoY vs. 4.9% in 2022) and reduced GDP growth will not be accompanied by a substantial rise in unemployment.
In our opinion, today’s data is slightly negative for the PLN exchange rate and yields on Polish bonds.