Wage growth decelerates in the 2Q

Monthly wage growth decelerated for the third quarter in a row. In the 2Q monthly wages increased by 4.8% YoY in nominal terms (7.3% in 1Q) and reached above 1000 euros for the first time (1023 EUR). Real wages, which previously accelerated seven quarters in a row, decelerated to 4.8% as well. Deceleration of wage growth was expected.

Monthly wage growth decelerated in most economic activities, except energy, finance, real estate, accommodation and food services and administrative and support service activities. At the same time, the growth of average hourly gross wages accelerated to 8.8%. The impact from the remuneration to employees for the time not worked, which is one component to explain the difference between monthly and hourly wages, was relatively small in 2Q. The reason comes from the increased share of employees with lower salaries compared to a year ago. The employment increased faster in the activities with lower wages than average, e.g. agriculture and forestry, domestic trade, accommodation and food services and administrative and support service activities. Although the number of employees has increased, hours worked per employee has diminished.

Wage growth responds to the change of economic growth with a certain delay. On the one hand, shortage of labour force and decreased unemployment press wages upwards, on the other hand the share of labour costs in enterprises’ turnover has increased and profitability decreased. Although, the number of employees increased in 2Q, total wage and labour cost has decreased. Deceleration of the wage growth refers to the better adjustment of enterprises and labour market to the weaker economic growth. Swedbank industrial survey published this spring indicated that enterprises planned less growth of wages this year.

According to our recent forecast (Swedbank Economic Outlook), nominal wage growth decelerates to around 6% this and the next year (7.8% in 2013). However, escalation and protraction of the geopolitical tensions can worsen economic sentiment and decelerate wage growth even further. Although nominal wage growth decelerates this year, real wage growth accelerates as inflation rate is low. Growth of real wages will slow down together with the inflation picking up next year.

Source: Swedbank

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