Wage pressures in CEE significantly above Eurozone

On the radar

• Industrial output growth in Poland went up by 1.6% y/y in January, while producer prices declined by -9% y/y.

• In Slovakia unemployment rate was at 5.2% in January.

• In Croatia, unemployment rate went up to 6.8% while real wage growth arrived at 8.6% y/y in December.

• In Poland, employment contracted by -0.2% y/y, while wage growth accelerated to 12.8% y/y in January.

• Today, Polish retail sales growth will be published for January.

Economic developments

On Tuesday, the ECB published data on negotiated pay in the Eurozone that rose 4.5% at the end of 2023. The growth dynamics eased from 4.7% in the previous quarter moving away fears of increasing wage pressure. In the meantime, gross nominal wage growth in the CEE region has sustained double-digit growth dynamics at the end of 2023. In Poland, data for January was published and the wage growth accelerated to 12.8% y/y (compared to 9.6% y/y in December). Additionally, according to the National Bank of Poland survey, firms are ready to increase wages further. Only in Czechia and Slovakia, nominal wage growth is single digit but still almost twice as high as growth of negotiated pay in the Eurozone. Finally, generous increases of the minimum wage in combination with tight labor market conditions are also likely to keep the wage pressure elevated.

Market movements

The CEE currencies have strengthened against the euro since the beginning of the week. The bond market showed mixed performance so far, although the long-term yields moved slightly down on the major market this week. Minister Finance in Romania said that reducing the budget deficit by 0.5% of GDP that is required by the EU is a very hard challenge. He doubted such consolidation I possible given the election schedule. Polish Finance Minister Domanski expresses his hope for a change regarding functioning of the Warsaw Stock Exchange as he would welcome its revival.

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