Decline in industrial production in November
In accordance with the GUS data, industrial production sold in businesses employing more than 9 people decreased by 0.7% YoY in November compared to a 1.9% YoY increase in October, running below the market consensus (1.4% YoY) and above our forecast (-2.5%). Industrial production growth was largely driven down by the statistical effect of an unfavourable difference in the number of working days between October and November (in November 2023 the number of working days was the same as last year, while in October there was one day more in 2023 than in 2022). In addition, the effect of a high base from a year ago contributed to the slowdown in annual production growth. Seasonally-adjusted industrial production shrank by 0.3% MoM in November.
Production supported by domestic demand
Due to the impact of adverse calendar effects, the slowdown in output growth was broad-based and was recorded in the three main industry segments, i.e. export-oriented sectors (-2.6% YoY vs. -0.9% in October), construction-related industries (-5.7% vs. 0.4%) and other categories (1.3% vs. 3.3%). This data indicates that what works as a stabilising factor for industrial production is the recovery of domestic demand, in particular consumer demand, supported by the rapid fall in inflation recorded in recent months (see MACROpulse of 15/12/2023). Moreover, the data is consistent with our conclusion saying that the continuing slowdown in the manufacturing sector’s activity in the Eurozone (including in Germany), resulting in a decreased demand for intermediate goods manufactured in Poland, is the main factor behind the slowdown in the Polish industry over the last couple of months (see MACROmap of 18.12.2023). Our economic growth forecasts for the Eurozone and Germany indicate that a recovery in production in export-oriented industries - and thus a marked increase in industrial production - can be expected in Q1 2024. However, December's Eurozone economic data signalled a growing likelihood of a scenario in which this recovery would only begin in Q2.
Double-digit wage growth continues
In accordance with the GUS data published today, nominal wage growth in the sector of businesses employing more than 9 employees decreased from 12.8 YoY in October to 11.8% YoY in November, running above the market consensus (11.4%) and our forecast (9.0%). In real terms, after adjusting for price changes, wages in businesses rose by 4.9% YoY in November vs. a 5.8% growth in October. Consequently, the three-month average real wage growth rate was 4.2% YoY in November, the highest since July 2021. The main factors pushing annual nominal wage growth down between October and November were the cessation of the impact of prize and bonus payments in the mining industry and the effect of last year's high base. It is worth noting, however, that wage growth in manufacturing (11.9% YoY vs. 11.8%) remained strong. This suggests that, despite the gradual decline in employment (see below), wage pressures in this sector remain elevated. However, this does not change our assessment that nominal annual wage growth will follow a mild downward trend in the coming quarters, supported by the rapid decline in inflation we expect in H1 2024 (see below) and the associated reduction in corporate wage pressures.
Is this the end of employment adjustment for businesses?
Based on GUS data, employment growth in the business sector slowed to -0.2% YoY in November vs. -0.1% in October, running in line with our forecast and the market consensus. The number of employed in October went down by 0.2k comparing to September. Workforce cuts in the manufacturing sector (a 2.7k drop MoM in terms of the number of employed) was the main factor driving the employment growth down, which confirmed that the restructuring processes running in this sector over the last couple of months are still in progress. In our view, the slight decline in MoM employment recorded in November signals that the adjustment in its level, which followed a strong slowdown in economic growth in 2023, is coming to an end. What supports this assessment are leading economic indices, signalling a sustained improvement over many months in assessments of the expected financial situation in manufacturing, construction and retail businesses. In the coming quarters, we expect that rising labour demand, as a result of the economic recovery, will contribute to a slight increase in employment in the business sector, despite a declining labour supply (the number of people of working age).
A strong fall in inflation to strengthen consumer demand in H1 2024
Declines in both real wage growth and employment in the business sector resulted in a decrease in the real wage fund growth rate in the business sector (the rate being the product of employment and average wage adjusted for changes in prices) to 4.7% YoY in November vs. 5.7% in October. Consequently, the three-month average real wage growth rate was 4.1% YoY in November, the highest since April 2022. It supports our consumption growth forecast (2.3% YoY in Q4 vs. 0.8% YoY in Q3 2023). In the following quarters, the real wage fund and consumption will be supported by the significant decline in inflation we expect, which, according to our revised forecast, will fall to 3.3% YoY and 2.4% YoY in Q1 and Q2 2024 respectively. In our view, lower-than-expected inflation in H1 2024, largely as a result of the extension of the zero VAT rate on unprocessed food and the freezing of energy prices for households, will prompt the MPC to cut interest rates twice in March and July 2024 (by 25bp each time).
In our view, the November industrial production and labour market data is slightly negative for the PLN and the yields on Polish bonds.