Poland: Strong labour demand, but real wages in decline

Labor demand remains strong despite signs of a slowdown in some sectors, such as construction. Adding to this is the large number (approximately 400,000) of refugees from Ukraine who have found work in Poland since the war broke out and are likely to be largely unaccounted for in the CSO's employment data. Combined with the demographics, this suggests a continued tight labor market and little room for unemployment to rise despite the economic slowdown that Poland is facing in 2023.

However, after a very successful start to the year, a slowdown in demand for jobs is evident in many areas of the economy. This is primarily seen in manufacturing, where 7,000 full-time jobs have been lost since January. Information and communications is still doing very well (14,000 jobs gained), which may be related to the relocation of some companies to Poland from the East after the start of the Russian aggression. Employment in retail, among others, is also growing, which is probably related to the influx of refugees into the country.

On the other hand, wage growth was weaker than expected - its rate slowed from 14% to 13% YoY, below consensus (14.2% YoY). Given how strong labor demand is, we can assume that the lower propensity of companies to raise wages is due to preparation for the economic slowdown, but also to prepare company budgets for a large increase in the minimum wage in 2023.

It should be noted here that in real terms, wages have been falling almost continuously since April, and this is unlikely to change in 2023 as well. The trend is already resulting in weaker consumer demand, especially for durable goods. This is one of the key reasons for the slowdown in GDP growth we expect next year.

So far, everything indicates that the condition of the labor market, for both employment and wages, will be better than that assumed in the latest NBP inflation projection. This is one of the reasons why we believe that the return of CPI to the NBP's target may prove to be for longer than the projection assumes. This will be reflected primarily in stubbornly high core inflation. Also we point out that with the structural labour shortage, the labour market should adjust via slower wage dynamics than employment cuts. Companies prefer to hoard labour when any slowdown is seen as temporary and to rather adjust wages - this time however even a wages slowdown may be shallower due to the strong countercyclical hike in the minimum wage planned for 2023 (by 19.6%).