Eurozone firms expect weaker wage growth

According to a recent study by the European Central Bank, wage growth is likely to slow to 4.3 percent this year, with further declines expected in 2025.

Eurozone companies expect wage growth to gradually slow, according to a study by the European Central Bank. The companies surveyed assumed wage growth would weaken from 5.4 percent in 2023 to 4.3 percent this year, the ECB announced Friday in Frankfurt. For 2025, they expected wage growth to slow further to 3.5 percent.

The European Central Bank regularly contacts companies in the euro area to get an idea of ​​economic developments. The survey results are based on conversations with 62 major companies conducted between 17 and 26 June.

Wage growth as a driver of inflation

The ECB said low inflation had fuelled expectations among many companies that wage growth would normalise in 2025. However, some companies reported that unions were still seeking higher wage agreements to compensate for the recent period of high inflation. Strong wage growth in the euro area has recently been one of the main drivers of inflation. In the first quarter, collective wages in the 20-nation bloc rose by 4.7 percent.

According to European Central Bank President Christine Lagarde, the central bank expects labor cost growth to remain high in the short term. Wage increases have been gradual, with one-off payments contributing significantly to the growth, the ECB chief said on Thursday after a rate meeting in Frankfurt. “There is a very large catch-up component to inflation,” she said. At the same time, Lagarde pointed to surveys suggesting wage growth will weaken next year. (APA/Reuters)