Wage growth in Q2 remained below expectations
Economic commentary by Jakub Seidler, Chief Economist of the CBA
Average wage growth in Q2 came in at 6.5%, slowing from 7.2% in the previous quarter (after revision, previously 7%), chart 1. The analyst consensus according to Reuters was 6.9%, the CNB estimate was 7.2%. Today's figure thus finished below expectations, as already indicated by the details of GDP released last week. Average annual inflation in Q2 was 2.5% (vs. 2.1% in Q1), so real wage growth slowed from 5% to 3.9% in Q2 (Chart 2). Real wages are thus already rising in annual terms after a two-year pause this year, but in quarter-on-quarter terms they have been rising for the 5th quarter in a row. The average wage was CZK 45,854, while the median wage was CZK 38,529. The median wage, however, grew by only 5% and, as in the first quarter, lagged behind the growth of the average wage. For the whole of 2023, wage growth reached 8%; for this year, the CBA forecast expects nominal wages to grow by 6.8%, while the CNB expects stronger growth of 7.4%, but today's figures rather confirm a slightly weaker dynamics below the 7% threshold. In real terms, wages are expected to grow by around 4.5% this year and are likely to reach their 2021 peak level only in 2026.
The fastest annual wage growth was recorded in 2H2012. The health care and social assistance sectors recorded double-digit growth in Q4, followed by water supply, manufacturing and construction with weaker growth (see Table 1, top). By contrast, the slowest growth was in education (+2.1%) and public administration (+2.9%). In these two sectors, growth was also the weakest in terms of development since Q2. Q2 2019, when average wages rose by 33%, while in public administration and education they rose by 22% and 26% respectively (Table 1, last column).
The CNB expected wage growth in Q2 2019 to be higher than in Q2 2019. It was wage growth in market sectors that fell short of the CNB's estimate, reaching "only" 7.3%, while the CNB had expected growth of 8.2%. The subdued growth in non-market sectors due to the consolidation package was broadly in line with the central bank's estimate (2.8% vs. 2.7%), Chart 3. The slowdown in wage growth in market sectors compared to the previous quarter (8.3 after revision) was mainly due to weaker wage growth in manufacturing (from 8.1% to 7.6%), trade (from 7.3% to 6.2%) or transport (9.3% to 7.3%).
For the second quarter in a row, we can also observe noticeably weaker dynamics of median wages, which are about 1.5 percentage points weaker this year compared to the development of average wages. While average wages grew by 6.9% in the first half of the year, median wages grew by 5.3% (Chart 4). This suggests that wage dynamics are more likely to be driven by better paid employees.
In quarter-on-quarter terms (seasonally adjusted), the average wage rose by 1.4%, compared with around 1.7% in previous quarters. In real terms, it also slowed down and grew by 0.7%. Although rising for the fifth consecutive quarter, its growth in Q2 was one of the weaker ones (Chart 5).
Wage growth in Q2 thus fell short of expectations, failing to confirm the more favourable expectations of Q1. At the same time, as in the first quarter, median wages themselves are growing more slowly, which from the central bank's perspective represents less concern about the impact of wage growth on consumption or inflation. Thus, today's figures suggest that average wage growth this year may end up in line with the assumption of the latest CBA forecast, which expects wage growth of just under 7% this year and will end up behind the CNB's estimate. At the same time, nominal wage growth in selected countries over the last 1,3,5 and 10 years shows that wages in the domestic economy generally lag behind those in the surrounding countries in the region, which is likely to be the case this year as well (Chart 6).
