Reading the minutes of the discussions of the members of the Board of the BNR published on Monday raises 6 alarming signals about the future course of the economy. And the tone is not at all optimistic

The number of people employed in the economy slowed down significantly / Intentions to hire increased their reduction

As for the labor market, the Council members noted the coincidence of the latest data and specialist surveys, which indicate a significant slowdown in the monthly growth of the number of employed in the economy in July-August, especially due to employment in the private sector. sector, and the BIM unemployment rate fell only slightly in the third quarter overall to 5.4 percent.

At the same time, in October, very short-term employment intentions somewhat accentuated their decline from the previous quarter’s average, and the labor shortage reported by companies narrowed significantly, largely correcting its rise from the third quarter due to industrial and services developments.

Double-digit wage growth has slowed, with the private sector setting the tone

It was also noted that the double-digit annual dynamics of the nominal accrued average wage continued to slow down its growth in the first two months of the third quarter against the background of a deepening fall in the private sector.

Growth in annual industrial labor costs continued the slowdown that began in May. However, Council members agreed that it remains particularly alert and concerned about the evolution of inflation.

At the same time, the impact that could potentially have on the future evolution of wage costs in the private sector was highlighted by successive increases in the minimum wage and the removal of some tax benefits, as well as possible additional increases provided in the public sector.

At the same time, any additional increase in wage costs can be more clearly absorbed into profits in the context of more cautious consumer behavior, several Council members argued.

The effects of fiscal measures introduced to continue fiscal consolidation, as well as the increased use of workers from non-EU countries, as well as the tendency of some companies to increase their investment in equipment to replace labor shortages.

The expected impact of the increase and introduction of indirect taxes and fees is responsible for the increase in the annual inflation rate at the beginning of next year

The annual rate of inflation will decrease to 7.5 percent in December 2023, similar to the previous forecast, but will increase early next year and then gradually decline to 4.8 percent in December 2024, from 4.4 percent in the previous forecast, to accelerate its decline in 2025, declining at the end of the forecast horizon, respectively in September, to 3.3 percent in the upper half of the target range

The increase in the annual inflation rate at the beginning of next year is related to the expected impact of the increase and introduction of indirect taxes and fees in order to continue the budget consolidation. At the same time, it is expected that the overall effect of factors on the supply side will eventually become disinflationary again, mainly under the influence of base effects and downward corrections in quotations of some goods, especially agro-food raw materials, Council members repeatedly emphasized.

Based on the data, the balance of risks remains to the upside in both the short and long term the effects potentially caused by changes in direct taxes and the cancellation of some tax benefits, as well as possible additional tax increases announced in the perspective of the budget consolidation process. It was also mentioned about the uncertainty associated with the further dynamics of oil prices in the context of the conflict in the Middle East.

On the other hand, somewhat more intense inflationary pressure from fundamental factors is expected in the second half of 2023 than in the previous forecast, which will subsequently decline significantly faster and be exhausted by the end of the forecast horizon, the members of the Council concluded.

Also, the dynamics of the unit cost of labor is likely to stop its growth at the end of the current year, and then enter a downward trajectory, but somewhat higher compared to the previous forecast, some members of the Council noted.

In 2023, economic growth will slow down much more than previously predicted

Regarding the future cyclical position of the economy, Council members noted that, according to new estimates, the slowdown in economic growth is expected to be significantly more pronounced in 2023 than previously expected – amid high spending, falling external demand and the conduct of monetary policy – and only slightly will recover in 2024, but more noticeably in 2025 under conditions of budgetary consolidation, as well as intensification of the absorption and use of European funds related to the next generation EU instrument.

In 2024-2025, consumption will recover, but it will not be the same as it was

It noted that after a sharp deceleration from 2023, household consumption is likely to be the main determinant of GDP growth in the 2024-2025 range, but with a smaller contribution than in previous years in the context of gradual GDP growth. restoration of the dynamics of real disposable incomes of the population, as well as high interest rates on loans and deposits of the population.

At the same time, it was noted that net exports, in turn, will have a marked expansionary effect in 2023, so that later its contribution will again become negative, so that the current account deficit is likely to undergo a markedly more pronounced correction as a share of GDP this year compared to previous forecasts, but will only decrease slightly in the next two years, remaining well above European standards during that time frame, Council members said.

However, significant uncertainty and risks continue to arise from the future conduct of fiscal and income policy

However, significant uncertainties and risks continue to arise as a result of the future conduct of fiscal and revenue policy, the members of the Council agreed, referring to recent steps aimed at limiting budget expenditures in 2023 and the possible addition in the following years of a package of corrective fiscal and budgetary measures – including from the point in view of commitments made under the excessive deficit procedure and conditions related to other agreements concluded with the EC – as well as the potential implications of new legislation on pensions and wages in the state of the industry, as well as possible new wage increases budget employees