Euro Zone Negotiated Wage Growth Slows, Setting Stage for September Interest Rate Cut
Euro zone negotiated wage growth slowed in the last quarter, potentially paving the way for another interest rate cut in September. Data from the European Central Bank revealed that growth in negotiated wages dropped to 3.55% in the second quarter from 4.74% in the previous quarter, mainly due to a significant slowdown in Germany.
The ECB considers this figure a crucial factor in its policy decisions, and a further slowdown in the upcoming quarters could prompt more policy easing. With markets predicting a more than 90% chance of a rate cut next month, it seems likely that there will be at least one more cut by the end of the year.
This economic weakness has led to calls for a rate cut from Finnish policymaker Olli Rehn and delays in the expected recovery by the German central bank. While some experts believe that wage growth could be volatile and potentially pick up again in Germany, others argue that it has peaked and is aligning with the ECB's projections.
Morgan Stanley noted that the first quarter may have been the peak for negotiated wages in the euro area, and the expected slowdown in compensations per employee suggests that wage growth is on a downward trajectory. Despite wage growth still exceeding levels consistent with a 2% inflation target, ECB chief economist Philip Lane remains optimistic, pointing out that wage deals already in place will lead to a further slowdown in the future.
In conclusion, the slowdown in negotiated wage growth in the euro zone could signal an impending interest rate cut in September. This could have implications for inflation, economic growth, and overall market sentiment. It's important for investors and individuals to stay informed about these developments and consider how they may impact their finances and future decisions.