In Bulgaria wage growth picks up to 7.6% y/y in Q2

Average wage growth picked up to 7.6% y/y in Q2, up from 7.3% y/y for the previous quarter, the statistical institute (NSI) reported. Wage growth has slightly moderated from the average performance in 2015 but remained quite strong. Moreover, real wage growth practically picked up further due to the low inflation environment. Nominal wages rose at an accelerating rate both in the public and private sectors. Public sector wages were up by 6.3% y/y in Q2 while private sector wages rose by 8.1% y/y. Public wages therefore did not put upward pressure on the private sector, in our opinion. In absolute levels, public sector wages are still higher than in the private sector but we think this should be entirely due to wage under-reporting by the private sector.

We think that the structure of wage growth was not very favorable since the pick-up of growth was mostly on account of services sectors. The stronger wage growth came from the hotel and restaurant sector, in our opinion in expectations for a strong tourism season. Wages in the telecom, professional and entertainment sectors also accelerated while wages in the exporting manufacturing sector retained almost flat growth in Q2. Construction wages continued to slow down, probably on account of the weakening construction activity since the beginning of the year.

Employment growth slowed down slightly to 2.0% y/y in June. Labor demand has nevertheless maintained healthy growth trend since the beginning of the year, which we consider as a signal for tightening labor market, especially given the rising wages. Public sector employment slowed down to 0.1% y/y in June while private sector employment eased marginally to 2.6% y/y. The weaker growth in private sector labor demand seemed mainly on account of the hotel and financial sectors whereas labor demand by the manufacturing industry remained relatively unchanged.

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