Wage growth, employment creation accelerate in Slovakia

The average nominal monthly wage increased by 7.0% y/y to EUR918 in January, accelerating markedly from 2.1% y/y in December, according to the latest data by the statistical office released on Thursday. The acceleration of nominal wage growth exceeded significantly that of inflation and hence translated in higher real wage growth — the average wage in real terms rose by 4.5% y/y in January, after edging up by 0.2% y/y in the last month of 2017. Nominal wage growth in the key industry sector accelerated to 8.6% y/y in January from 2.5% y/y the month before with the real wage growth in the sector speeding up to 6.1% y/y from 0.6% y/y the previous month. The sector breakdown shows that in January, the highest wage was paid in ICT (EUR1,860), while the lowest — in restaurants and bars (EUR456). The highest annual wage growth was registered in ICT (up by 10.6% y/y), whereas the lowest was in posts and courier activities (up by 0.5% y/y). The wages in all sectors have been higher than their year-ago values.

We believe that the robust wage growth will continue in the coming months. We base our expectations on the overheating labor market that already suffers significant labor shortages. One of the planned measures is hiring foreign workers, but the authorities have vowed that there will be no social dumping. In addition, the higher minimum wage as of January, as well as regulatory measures such as higher allowances for night, weekend and holiday work, as well as the introduction of 13th and 14th salaries, may become additional sources of upward pressure on wage levels. Our consideration is also shared by the central bank and the government. Note that the NBS forecasts the nominal wage growth to accelerate to 5.1% in 2018, 5.3% in 2019 and 5.4% in 2020, while the real wage growth to slow down to 2.8%, 3.0% and 2.9%, respectively, in line with the projected to accelerate inflation.

At the same time, the annual employment growth in most sectors of the economy speeded up, which bodes well with the upbeat outlook on the economy. The employment growth in industry accelerated to 4.8% y/y in January from 4.0% y/y in December. Dynamics picked up in all industry subsectors. In manufacturing, employment rose by 5.1% y/y, following a 4.5% y/y increase. Mining was the sole sector overall to register a decrease in employment, which eased to 5.6% y/y from 6.9% y/y. On the other hand, the highest annual growth in employment was seen in ICT, which registered a 12.3% increase, accelerating from 2.6% in December. Annual employment growth accelerated in a number of other sectors, including sale and maintenance of vehicles, restaurants and bars, transport and storage, posts and courier activities, as well as selected market services.

Employment growth is likely to continue, supported by the creation of new and the expansion of the existing automotive production facilities, public infrastructure projects, such as the Bratislava bypass, as well as expectations for acceleration of EU funds drawing. At the same time, its pace is likely to be slower going forward as many companies complain of lack of qualified labor and a need of changes in the education system to secure better matching of the qualification of the labor force with the labor market needs. In view of the likely to continue to increase wage costs, we may expect companies to focus on substitution of labor with machines, which would boost investments, hence domestic demand, and would improve their competitiveness in the long run.

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