The average nominal monthly wage increased by the robust 7.3% y/y in April, thus speeding up from 5.5% y/y in March, our calculations based on the latest data by the statistical office released on Wednesday show. Thus, real wage growth accelerated to 4.9% y/y in April from 2.7% y/y in March, reflecting the fact that the annual CPI inflation eased to 2.3% y/y in April from 2.7% y/y in March. The nominal wage growth in the key industry sector speeded up to 8.1% y/y in April from 4.8% y/y in March, with the real wage growth in the sector accelerating to 5.7% y/y from 2.0% y/y the previous month. Nominal wage growth in manufacturing remained quite robust at 7.0% y/y in April and speeded up from 4.8% y/y in March. The sector breakdown shows that in April, the highest wage was paid in electricity and gas sector (EUR 2,155, up by 33.8% y/y) and ICT (EUR 2,054, up by 15.8% y/y), while the lowest (EUR 510, up by 12.3% y/y) – in restaurants and bars.
The wage growth remains quite robust, which in our view reflects the overheating labour market that already suffers from significant labour shortages. Therefore, the wage development are likely to continue to support relatively strong household consumption going forward, in our view. And yet, in view of the projected easing of the global and domestic economic activity, households may be expected to save a bigger part of their disposable income as well, in our view. The robust wage growth is likely to continue in the next months as although foreign workers are to be imported, the government has pledged that it would not allow social dumping. In addition, the higher minimum wage as of January 2019 (it was raised by 8.33% to EUR 520 per month), as well as regulatory measures such as higher allowances for night, weekend and holiday work, the introduction of 13th and 14th salaries, will create additional upward pressures on wages. Our consideration is also shared by the central bank and the government. Note that the NBS forecasts the nominal wage growth to accelerate to 6.7% in 2019, while the finance ministry – to 6.3%, while the real wage — to slower 4.0% and 3.7%, respectively. However, such an excessive wage growth, well above the labour productivity growth as seen in latest LFS last data, if preserved in the months to come as it seems the case, may erode the competitiveness of local firms, in our view.
Meanwhile, the employment growth in industry remained quite subdued at only 0.2% y/y, the lowest print since October, and moderating from 0.5% y/y in March. The strongest paces of employment creation were seen in accommodation (10.6% y/y) and construction (10.5% y/y), mining (7.7% y/y), selected market services (7.6% y/y) and restaurants and bars (6.5% y/y) with the job creation in the construction and the tourism related sectors being related to the gradual start of the active season. Jobs were shed in only two sectors, thee less than in March – again wholesale and retail trade. The meagre employment growth since the beginning of the year may be reflecting the companies still assessing their labour needs for this year after some contracts have expired at the end of 2018. Yet, on the downside, the more probable reason in our view could be the existing or even deepening skill mismatch, which again raises the question for the need of a comprehensive education reform.
We believe that the creation of new jobs is likely to continue going forward supported by the continuation of strong industrial output expansion, including in the automotive industry, the implementation of public infrastructure projects, such as the Bratislava bypass construction, as well as the expected to accelerate EU funds drawing. At the same time, its pace is likely to remain meagre as many companies continue to complain of lack of qualified and non-specialised labour and of a need of changes in the education system to secure better matching of the qualification of the labour force with the labour market needs. In this regard, the fact that the number of places in the dual education system in the 2019/2020 school year has almost doubled to 5,055 from 2,700 places available in the current academic year, is positive news. The employment creation may be expected to slowdown further in the next months also because the economic activity is likely to ease this year due to the weakening external demand, in our view. In view of the likely to continue to increase at robust pace wage costs, we may expect companies to increasingly focus on substitution of scarce and expensive labour with machines, new more advanced technologies and innovations, which would support private investments, hence domestic demand, and would improve their competitiveness in the long run.