Marta Petka-Zagajewska: The trend of relative weakness in the labor market continues

When we average the data from subsequent months, we see that we are still experiencing economic recovery. While there hasn't been any spectacular breakthrough, the changes are slow and limited, but in a positive direction.

This may therefore cause some frustration and a feeling that things were supposed to be better. However, when we look at the longer-term trend, we see that the economy is stabilizing, and positive impulses are appearing in a growing number of industries. Therefore, we predict that the full year will end with stronger economic growth than in 2024 (2.9% year-on-year – ed.). Our forecast is 3.3%, perhaps even a bit more. The second half of the year will be better than the first in terms of economic results, and the second quarter will be better than the first (a quick GDP estimate for the second quarter will be released in mid-August – ed.).

While retail sales in June were indeed a bit of a disappointment (+2.2% year-on-year – ed.), if we average the results for the second quarter relative to the first, the acceleration is quite noticeable – from around 1% year-on-year to 4%. An improvement in consumer sentiment is also visible. May and June were very good, with a slight reversal in July. However, I don't think this negates the upward trend.

Savings are positively surprising not only in economic surveys but also in data on savings rates, for example. Household deposits are still growing rapidly. I often hear the explanation that this reflects some kind of consumer anxiety. This isn't entirely true. A significant structural change is taking place: more and more households can afford to save. Whereas it used to be 30%, now it's 60-70%. This is a result of society's growing wealth and the structural decline in unemployment over the past decade or so, which then translated into disproportionately strong wage increases. Transfer policies, such as the 500+/800+ program, have also been implemented.

Changes facilitating unemployment registration would have contributed to an influx of people into unemployment. However, the increase in the unemployment rate resulted from both slightly larger inflows than their seasonality would suggest and larger outflows. The latter, however, was unaffected by the regulatory changes.

This trend of relative labor market weakness, primarily in employment, continues. The decline in employment (in the corporate sector in recent months by approximately 0.8% year-on-year – ed.) is driven by the challenging labor supply situation, but companies' demand for employees is also lower. This can be explained in many ways. In the latest "NBP Quick Monitoring," the largest percentage of companies indicated that weak demand for their goods and services was behind their restraint in HR policies. Labor costs came second. We wondered whether the lower demand for labor and weaker employment data might be a result of progress in automation and improved labor productivity. However, NBP data tempers the willingness to draw such conclusions. Only about 10% of companies declared that automation had enabled them to reduce their demand for employees.

At the end of 2024, companies were hoping for a stronger economic recovery, but changes—while positive—are slow. This is starting to impact staffing decisions, with vacancies not being filled or new hires not being sought. This doesn't change our view of the unemployment rate. It will remain very low in Poland, and we'll be talking more about labor shortages than layoffs. We may have a few more employer-driven layoffs, but that's nothing compared to the results from a dozen or so years ago.

Exactly. I also think that the longer this goes on, the less companies worry that it will be very difficult to recruit employees back. This was the case during the very hot labor market during the post-pandemic recovery: people were afraid to lay off employees because they would then have to search for someone new for many months. This was a significant factor encouraging them to "hoard."

Now the labor market is more balanced in terms of supply and demand, at least on a macro scale. This is reflected, among other things, in the slowing wage growth. The lower minimum wage increase than in recent years plays a significant role here. It seems that companies feel they no longer have to compete as fiercely on wages. The slowing wage growth is not uniform. In June, we saw nominal growth of +9% year-on-year, more than in May, when it was +8.4% and above the average economists' forecast of +8.5%. (Editor's note). However, when the data are "cleared" of fluctuations, the trend is quite clear and has not yet ended. We assume that in the medium term, wage growth will stabilize in the range of 6-7% year-on-year.

This would be very close to the rate of growth in labor productivity. Last year, it was around 5%, and this year it will likely be slightly higher. From an economic equilibrium perspective, such a wage increase would be sustainable without generating inflationary pressures or impacting corporate profitability.

We assume that private consumption will support GDP growth stabilization at 3% or more. Consumption itself will also grow at this rate, which in turn will be consistent with the long-term scale of real wage growth.

We expect that in the coming quarters, retail sales—and therefore private consumption—will be positively impacted by the already observed recovery in the mortgage market. This recovery will be further strengthened if interest rates are further reduced . The recovery in the real estate market will be accompanied by increased spending on furniture and consumer electronics/appliances, among other things.

Yes, although the main source of positive changes in Poland will be domestic demand. In the context of foreign demand, we are more concerned about the extent to which it will limit the scale of the recovery. We don't see it becoming a significant growth driver in the short term.

For various reasons: customs policy, but also the fact that in Germany we still have more hope than evidence that the fiscal package is beginning to flow to businesses, and consequently there has not yet been a significant improvement in consumer sentiment. The economic situation will likely be improved more by the ECB's interest rate cuts, but this will not produce immediate positive effects either.

Incidentally, this is also reflected in the unusual structure of investment activity in Poland. Typically, companies with foreign capital, focused on export markets, have been above-average in terms of investment activity. Now we see that this segment is least willing to invest and develop. Investment activity remains concentrated among public companies, which can be attributed primarily to EU funds, with some support from domestic enterprises.

The structure of investment activity has changed, with data on construction production now accounting for a smaller portion. Quarterly investment data includes, for example, military expenditures.

However, when it comes to construction itself, a positive trend is also visible. After a year and a half of deep declines in construction, we are essentially reaching zero, or even minimal growth. We anticipate upward trending readings in the coming months. Furthermore, positive dynamics are visible in the structure of construction work. Specialized work has already rebounded significantly (in the first half of the year, it was 7.6% higher than in the same period of 2024 – ed.), which is a signal that the coming months will bring a revival in civil engineering. While 35% of the KPO funds have already reached Poland, only 10% have reached the final beneficiaries. Therefore, this money should be "revealed" in the economy immediately.

At the same time, we expect an improvement in the housing segment. Interest rates are falling, and demand for loans has increased. Developers, seeing a recovery in demand, will increase supply. We are at a turning point for the construction industry. The outlook for it is more certain than for the manufacturing sector, which is heavily burdened by export uncertainty.

Yes, and this is not only the result of our forecasts, but also of other institutions, including even the National Bank of Poland, if we exclude the effect of the "energy unknown" (in its forecasts, the National Bank of Poland maintains the unlikely assumption of an increase in inflation in the fourth quarter as a result of a large increase in energy prices for households – ed.).

We don't have such detailed data on inflation dispersion, or for example, how often prices change in specific categories. This is where MPC members have an advantage. However, I can say that there is still a divergence in trends. For example, in services, such as recreation and culture, or healthcare, the rate of price growth is still disproportionately high. However, this divergence is narrowing. So even in those areas of the basket that are becoming more expensive, we are heading in the right direction.

Inflation threats are gradually declining. It seems we are still pursuing a very restrictive monetary policy. I certainly don't see the need to tighten it by 250 basis points (this motion was supported by Professor Tyrowicz at the June MPC meeting - ed.).

We see room for further monetary policy easing, but we believe current market estimates of nearly 100 basis points of cuts over the next six months are excessive. We believe the Council will remain very cautious. Furthermore, the draft budget for 2026 is expected to be released at the end of August. We assume it will not include significant fiscal consolidation. This could be interpreted by the Council as limiting the scope for rate cuts, and they will not occur at the pace currently priced in by the market.