- Polish employment dropped 1.7% y/y in April, down from -1.4% y/y in March. This is in line with the consensus expectation. However, wage growth was 3.8% y/y in April, much weaker than the consensus expectation of 5.0% y/y and our expectation of 4.7% y/y.
Details
It is now very clear that the situation in the Polish labour market is deteriorating and this is especially putting downward pressure on wage growth – this is good news for Polish competitiveness, but bad news for private consumption growth.
The slowdown in Polish wage growth is very sharp, and in fact on a quarterly basis the annualised (seasonally adjusted) growth in nominal wages is now turning negative. With inflation likely to hover around 3½–4% for the rest of the year, real wage growth is likely to turn negative in the coming months. Furthermore, given that employment is continuing to fall, growth in the real wage sum is turning quite negative. This is likely to start weighing significantly on private consumption growth in the coming quarters.
Assessment & Outlook
The relatively big downside surprise on wage growth will be yet another argument for the dovish camp in the Polish central bank’s Monetary Policy Council (RPP) – we now feel pretty sure that we will get another rate cut of 25bp at next week’s RPP meeting.
The sharp slowdown in wage growth indicates to us that the drop in economic activity is sharper than the Q1 GDP numbers revealed. Hence, we are a bit puzzled by the apparent inconsistency between the reported positive growth in Q1 GDP and the sharp slowdown in wage growth. Polish wage growth seems to be slowing at least as fast – or even faster – than in Poland’s neighbouring countries where GDP growth turned decisively negative in Q1.
