April wage data excludes the scenario of interest rate cuts by the Monetary Policy Council in June

April's wage data rule out the scenario of interest rate cuts at the June meeting of the Monetary Policy Council, says PKO BP's chief economist Piotr Bujak. If subsequent data raise doubts about the durability and strength of the downward inflation trend, the Council may postpone the next rate cut beyond July.

"The surprisingly strong wage growth is indirectly a good signal about the condition of the economy. Alongside the good GDP data for the first quarter and the surprisingly good industrial production data in April, this is an indicator that allows us to believe that the Polish economy will actually grow significantly above 3% this year. This is already a factor that makes central bankers cautious about further reducing the restrictiveness of monetary policy, and the wage growth itself in particular - as a potentially inflation-generating factor - is probably the most important warning signal," Bujak told PAP Biznes.

"It is worth emphasising that although wage growth in April was stronger than expected, it is lower compared to the double-digit growth rate in the previous year. We had a similar surprise - worrying from the point of view of inflation prospects - in January this year, and then there were months when wage growth slowed down significantly, more than expected. Therefore, we have to wait for data for the following months to assess the trend. Nevertheless, this reading alone certainly means that there is no talk of another interest rate cut at the MPC meeting in June, and some financial institutions and market participants expected such a move. It seems that these data rule out such a scenario," he added.

On Wednesday, the Central Statistical Office reported that the average gross salary in the corporate sector in April 2025 increased by 9.3% year-on-year, compared to a 7.7% increase in March. The reading was significantly higher than analysts' expectations, who expected an increase of 8.1% y/y.

The chief economist of PKO BP pointed out in an interview with PAP Biznes that if subsequent data raise doubts as to the durability and strength of the downward inflation trend, the Monetary Policy Council may postpone the next interest rate cut beyond July.

"If the full data for April, because we still need to know, among other things, retail sales data, and then the data for May looked similar - if they raised doubts as to the durability and strength of the downward trend in inflation, then one can easily imagine that the rather conservative Monetary Policy Council will delay the next interest rate cut longer than until July, it will give itself more time," Bujak assessed.

"After the July meeting, there is still an August summer break in the Council's meetings, so it seems that this would be a sufficiently long period and a sufficiently large set of data to then - with greater certainty regarding the inflation outlook - make a decision on a possible, further rate cut. We have to reckon with such a scenario, but it depends on further data. At the moment, we can say, based on the information we already have, regardless of what other data we will see before the June MPC meeting, that there will be no further cut at the next meeting," he added.

CONSTRUCTION PRODUCTION DATA CREATE DOWNWARD RISK FOR INVESTMENT FORECASTS

On Thursday, the Central Statistical Office reported that construction and assembly production fell by 4.2 percent year-on-year in April. The reading was significantly lower than analysts' expectations, who had forecast a 0.9 percent year-on-year decline.

According to Piotr Bujak from PKO BP, data on construction and assembly production for recent months may be disturbing and generate a downward risk for investment growth forecasts in the first half of 2025.

"In our scenario, a clearly stronger increase in investments was to occur from the third quarter of this year, so for now we are not forced to revise it due to the weak data on construction and assembly production for April. We expected that in the first and second quarter of this year investment activity could still be subdued, although it was supposed to recover slightly," the economist told PAP Biznes.

"The data on construction and assembly production for April - but also for the previous few months, when they surprised negatively - may be a bit worrying and generate a downward risk for the already modest forecasts of investment growth in the first half of this year," he added.

The economist points out, however, that the second half of the year should bring the expected, clear revival of investment.

"On the other hand, we have positive signals, such as the Central Statistical Office data on the estimated value of newly started investments in the fourth quarter of last year. Historically, this indicator is strongly correlated with actual investments in the economy, published as part of GDP data, national accounts, but with a delay of several quarters - three, even four," Bujak said.

"We can therefore say, looking at all this information, that the beginning of this year was still marked by weak investment activity, but we can still believe that the second half of the year will bring a long-awaited, clear recovery," he added.

Among the data published by the Central Statistical Office for April, the positive surprise was the data on industrial production, which increased last month by 1.2% year-on-year, compared to the market expectation of a 0.2% year-on-year decline.

According to Bujak, although April's industrial production data are a good signal, due to the uncertainty in the external environment related to American trade policy, one should approach forecasts for this sector with caution.

"The surprisingly good production data for April are pleasing and give hope for a strengthening of the recovery trend in Polish industry. This trend was slightly visible in previous months, and was also visible in the PMI index for Polish industry. Nevertheless, it is probably too early to declare success and to be convinced that in the coming months and quarters, this year and next year, Polish industry will clearly revive," said the economist.

"We have dark clouds on the horizon - the risk associated with American trade policy. Now we are in the de-escalation mode of trade wars, but perhaps in a few weeks the situation will change unfavorably and demand in our main export markets will be weak, and therefore the recovery of our industry will be very slow and laborious. We should be happy, but due to the uncertainty in the external environment related to American trade policy, we should approach future forecasts with caution," he added.

In the basic macroeconomic scenario, PKO BP forecasts that the Polish economy will grow by 3.3% in 2025. According to the bank's chief economist, this forecast has a fairly well-balanced risk.

"On the negative side, there is the impact of trade wars, but on the other hand - we see a chance for a positive surprise from the recovery of the European economy. Some of the data there looks promising. We can expect a growing, positive impact of interest rate cuts made by the European Central Bank. We can also see a certain improvement in the mood of enterprises, but also investors, related to the announced turnaround in German fiscal policy," Bujak told PAP Biznes.

"The fall in inflation in the eurozone is improving the real dynamics of household incomes. Labor markets in the main European economies remain strong. Therefore, we still believe that despite the threat from across the ocean from the Donald Trump administration, the European industry and the entire European economy will accelerate this year, which will create favorable conditions for the acceleration of the Polish economy as well," he added.

Patrycja Sikora (PAP Biznes)

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