ECB Predicts Wage Growth Will Slow Sharply at End of This Year

(April 23): The European Central Bank’s main gauge of future pay growth continued to indicate a sharp slowdown in 2025, underpinning expectations for a further retreat in inflation that may allow more interest-rate cuts.

The ECB’s wage tracker, published Wednesday, predicts salaries will rise by an annual 1.6% in the fourth quarter. That’s just above the 1.5% projection seen in March, and a far cry from the 5.3% peak recorded last year.

The ECB this month lowered borrowing costs for a seventh time but won’t commit to further steps amid what officials have described as “exceptional” uncertainty around US trade policy. Inflation eased to 2.2% in March, with president Christine Lagarde saying the task of hitting the 2% target is “nearing completion.”

Prices in the services sector, where salaries play a large role, are still rising rapidly. But those gains have also leveled off in recent months. Lagarde has said “wages are gradually moderating.”

Backing this, an ECB survey published Tuesday showed greater confidence among companies that pay growth will retreat further — reaching 3% and 2.5% in 2025 and 2026 – down from 4.3% in 2024. The figure for 2025 was 0.5 percentage point lower than in earlier survey rounds, the ECB said.

The latest negotiated pay deals support this view. In Germany, unions representing about 2.5 million public-sector workers agreed to a wage increase of 3% this year and 2.8% in 2026, calling it a “difficult agreement in difficult times.” That’s a level broadly seen in line with price stability.

Investors predict further ECB rate cuts, partly due to uncertainty over global trade and a strengthening euro. The worsening outlook may also make it more difficult for unions to push through wage deals that would worry the central bank.

Source: Theedgemarkets