The real net wage growth decelerated further to 1.0% y/y in April from the 1.7% y/y increase reported in March, according to preliminary data released by the state statistical bureau. In nominal terms, the net wage in the economy decreased by 0.8% y/y to HRK 5,633 in April, decreasing for the first time since May 2014.
We expect real wage growth to slow down further this year due to higher base related to the expiry of the effects from the income tax changes effective as of Jan 2015. Nominal wages are unlikely to increase at a strong pace this year as the high indebtedness of local companies might limit any plans for wage hikes, especially given the fact that the unemployment rate remains high and the labour market is still loose. Moreover, the government did not increase the wages of civil servants and public employees, which constitute about a quarter of the total labour force, by 6% as stipulated by current legislation. Negotiations between the outgoing government and trade unions have not reached any success so far and are likely to be discontinued given that the cabinet fell last week. These developments will not be supportive to overall wage growth this year, in our opinion. Still, we believe that wages may be supported by the economic recovery if it is not dampened by the likely stalling of reforms due to the early elections to be held most likely in September.