Eurozone’s wage growth, a crucial factor for the European Central Bank (ECB), showed a slowed growth, offering additional assurance to ECB executives who intend to decrease the interest rates in the coming week. The increase per employee in the second quarter was 4.3%, lower than 4.8% from the first quarter of the year, as confirmed by an analysis from Bloomberg Economics using data from Eurostat released on Friday. The ECB had forecasted a wage growth of 5.1% for the same duration in June.
The aforementioned figures come just before the predicted interest rate cut by the ECB next Thursday. Bloomberg’s survey suggests that if inflation continues to reduce, the borrowing costs will likely decrease every quarter, until it hits 2.5%.
The cost of living has seen a notable rise, leading to fairly rapid increase in workers’ wages. This has been a source of concern for the ECB due to fears that it might contribute to high consumer-price gains. Although inflation has lessened in recent times, the service sector continues to show persisting pressures, where wages hold a key role.
Germany, having compensated some workers with substantial one-off payments at the year’s start to balance inflation, is seen as a contributor to the volatility. It is feared that wage growth might see another surge in the third quarter, as warned by ECB executive board member, Isabel Schnabel.
However, there is optimism that things will become more moderate soon. ECB’s Chief Economist, Philip Lane, stated that the growth in wages will see a drastic reduction in 2025 and 2026, which strengthens the hope that inflation can be handled and kept within the 2% target by next year.
ECB officials are also closely observing corporate earnings and employees’ productivity to fully grasp the price pressure in the Eurozone. The productivity of employees kept on dwindling in the second quarter, a problem that policymakers have underscored as a cause for concern.
The data, separate but released on the same Friday, revealed that the Euro area’s output saw less growth than expected in the second quarter. The gross domestic product reported an increase of 0.2% compared to the previous quarter, which was a decline from 0.3% growth.