Czech wage growth remains strong, though slowing down

Average wage growth reached 6.7% YoY in the last quarter of 2019. Dynamics thus ended slightly above market expectations (6.5% YoY), but slightly below the Czech National Bank's estimate (7.2%). Still, the solid wage growth was driven mainly by wage acceleration in the public sector due to the rapid growth of wages in education (16%) and overall in public administration (+7.2%). As such, wage growth in the so-called non-market sectors accelerated from 7.7% in 3Q19 to 11.2%.

In the market sectors, however, wage growth slowed down more than expected from 6.8% to 5.7%, with wage slowing down broadly (see the table). While public wage growth was in line with the CNB expectations, private sector wages lagged behind (6.3% vs. 5.7%).

Given a slightly higher average inflation rate of 3% in 4Q19 after 2.8% in 3Q, real wage growth reached 3.6%, the weakest growth since 1Q17.

Despite a gradual slowdown, wages increased by 7.1% in the last year. This is slightly less than in 2018, when the year-on-year growth was 7.6%, but 2019 dynamics remains one of the highest in the last two decades. In the context of weaker numbers coming from abroad and a gradual economic slowdown, wage growth thus remained strong last year.

Given the expected slowdown in the Czech economy this year and some easing in labour market tensions, we assume that the growth rate will slow this year to 5.5% - despite the fact that 2020 overall wage growth will be supported by further wage increases for pedagogical workers, health professionals and other state sector employees, as well as a further almost 10% increase in minimum wages. Due to higher inflation exceeding 3% this year, however, real wage growth will be just slightly above 2%, ie, the weakest since 2013, when real wages fell by 1.6%.This might somewhat slow down the slightly so-far-strong households consumption, however.