Wage Growth in the European Union
The European Central Bank (ECB) is currently facing the challenge of accurately assessing wage growth. Despite weakened growth, the ECB wage indicator for the year 2025 shows positive growth of 3.1% in collectively agreed wages, including smoothed one-time payments. This suggests that wage growth continues to exist despite contrary statements.
Impact on Interest Rate Policy
A declining wage growth could alleviate the ECB’s inflation concerns, which could reduce the pressure for further interest rate hikes.
Interest Rate Policy and Economic Outlook
Recently, the ECB has lowered its key interest rates by 0.25 percentage points, marking the eighth adjustment since June 2023. This measure reflects updated inflation forecasts and the underlying inflation dynamics.
Expected Interest Rate Pause in Summer
A pause in interest rate policy is expected for July, based on the waning inflation dynamics and the weakness in wage growth. The economic outlook is also mixed; with a projected growth of 0.9% for 2025 and a steady increase in the following years, though the more optimistic expectations in the first quarter of 2025 were an outlier.
Inflation Forecasts and Market Reactions
The ECB has revised its inflation forecasts: 2.0% for 2025, 1.6% for 2026, and 2.0% for 2027, influenced by falling energy prices and a stronger euro. A pause in interest rates could stabilize the markets by reducing investor uncertainties.
The overall situation shows that the ECB continually adapts its monetary policy decisions to changing economic conditions to control inflation and promote economic growth.