Wage growth slightly higher than predicted

The average wage in the commercial sector rose in July by 11.6% y/y. The figure was slightly above our projection and the market consensus. Growth in employment was also slightly higher than we had predicted. It reached 4.7% y/y versus 4.8% y/y in June. The data confirm that favourable trends in Poles’ disposable incomes continue as the nominal wage fund increased by 16.8% y/y. The data also suggest that the economy will still be driven by private consumption. Demand pressure is still high. For quite a long time growth in wages has outpaced productivity growth, which threatens price stability on the one hand and means a rise in corporate costs on the other. The Polish economy has not seen any employment cuts yet but this should happen soon. In coming months one should not expect a sharp slowdown in wage growth. This process will probably be gradual and may be tempered by structural imbalances on the Polish labour market.


Industrial output slows more than expected

In July industrial production slowed more than had been expected. The growth figure fell to 5.6% y/y, compared to the market consensus of 7.5% y/y and our projection of 9.0% y/y. July was a successive month when the Purchasing Managers’ Index (PMI) was below 50 points, which suggested a sharper slowdown in production growth. Seasonally adjusted, the growth figure was 4.4% y/y, the lowest since May 2005. Nineteen out of 29 sectors recorded positive growth in production. Industrial output is still buoyed by exports, as indicated by high increases in sectors with a large share of exports in overall sales (motor vehicles, household appliances, radio and TV equipment), although production is gradually slowing in these sectors. Strong domestic demand driven by rapid wage growth has a stabilising effect on production. However, prospects for the future are uncertain. Domestic demand is likely to remain relatively strong but prospects for exports will be negatively affected in coming quarters by the slowing economies of Poland’s main trade partners and a strong zloty.


Core inflation in July

Demand-pull inflationary pressure is still strong. In July core inflation (excluding regulated prices) increased from 4.3% y/y to 4.4% y/y while net core inflation (excluding food and fuel prices) rose from 3.4% y/y to 3.5% y/y. The “new” core inflation (excluding food and energy prices) remained unchanged at 2.2% y/y. Core inflation is likely to grow further in coming months, being an argument for another interest rate increase before the end of the year.


July PPI as expected

The Producer Price Index (PPI) fell in July to 2.3% y/y from 2.7% y/y in June as we had expected. Producer prices eased as the zloty strengthened and prices of oil and industrial metals fell on international markets. PPI may continue to fall in coming months but is likely to increase to 2.8% y/y at the end of the year due to a statistical effect (low reference level).


Zloty stabilises

After a sharp weakening in mid-August, the Polish currency stabilised and even firmed slightly last week. The zloty made up some lost ground, although still remains much below the levels recorded at the beginning of the month. The zloty followed trends on base markets where the euro also gained some ground against the dollar.

This analysis is complied by Millennium Bank