Eurozone wage growth slows, boosting case for another ECB cut

Second-quarter negotiated pay rose 3.6% from a year ago. Picture: Hannelore Foerster/Bloomberg via Getty Images

A key gauge of eurozone wages eased — reinforcing the case for the European Central Bank (ECB) to continue lowering interest rates next month.

Second-quarter negotiated pay rose 3.6% from a year ago, the ECB said Thursday. That is down from 4.7% in the previous three months and broadly in line with estimates from Bloomberg Economics, as well as analysts at Morgan Stanley and Citi.

The data begin a three-week countdown to the ECB’s September meeting, where officials are expected to lower the deposit rate for a second time, following June’s initial move.

In the meantime, officials will receive further details on workers’ pay, as well as this month’s inflation reading and economic projections through 2025.

While policymakers left little doubt before their summer break that borrowing costs would fall further this year, lingering uncertainty has meant they have not committed to when and by how much.

“The pace of annual growth in negotiated wages in the euro area slowed sharply the second quarter. This will be welcome news for the ECB and keeps a September rate cut on the table,” said Maeva Cousin, senior global economist at Bloomberg Economics.

The growth outlook for the area’s 20-nation economy has since soured, with confidence slumping. Germany, the eurozone's largest member, saw output unexpectedly contract in the second quarter.

Such risks strengthen arguments to cut rates next month, according to Finland’s Olli Rehn, one of the first officials to speak following the ECB’s customary August hiatus.

Aside from a slowdown in wage gains, the ECB’s inflation outlook needs corporate profit margins to absorb some of the rise in labour costs and productivity to improve. That last element has disappointed lately — fuelling concern the ECB may be too optimistic.

Bloomberg