- Wage growth slowed to 2.0% y/y in June down from 3.8% y/y in May. Employment dropped by 1.9% y/y in June.
- The weak labour market data potentially opens the door for further monetary easing in the coming months.
- Real wage growth has now turned decisively negative and this is likely to put weight on private consumption in Poland in the coming quarters.
The situation keeps deteriorating on the Polish labour markets. In June employment dropped by 1.9% y/y – down from -1.7% y/y in May. This was in line with our and consensus expectations. However, much more notable was the continued sharp deceleration in wage growth. Hence, wage growth dropped to just 2.0% y/y in June – down from 3.8% y/y in May and well below the consensus expectation of 2.8% y/y and our expectation of 2.5% y/y.
The notable and continued deceleration in wage growth is clearly helping to ease inflationary pressures. This potentially could open the door for one more rate cut from the Polish central bank in the next couple of months.
Furthermore, it should be noted that real wage growth has now dropped to negative territory and this is likely to put significant downward pressure on private consumption growth in the coming quarters.
Hence, with real wage growth likely to remain in negative territory in the coming months, we find it hard to believe that private consumption growth will remain positive this year, and thus GDP growth is also unlikely to remain positive in 2009. Next week we will publish our updated forecast for the Polish economy – taking into account, among other factors, the very weak wage growth numbers.
The very weak growth in Polish wages is somewhat puzzling as it does not fit with the fact (?) that Polish industrial production and GDP have been doing significantly better than in other countries. This clearly indicate some downside risk on Polish growth.
