Eurozone wages accelerated growth in the second quarter, supporting the European Central Bank's pause on interest rate cuts
Wage growth in the Eurozone accelerated in the second quarter, reaching 4%, up from 2.5% in the first quarter. This growth has prompted the European Central Bank to maintain a cautious stance on interest rate cuts, with expectations that future wage pressures will ease, helping to reduce inflation in the services sector. Despite a significant increase in wages in Germany, a decline is expected in the future. The market generally anticipates that the European Central Bank will keep the key deposit rate unchanged at 2% during the September meeting, marking a pause in rate-cutting actions
According to Zhitong Finance APP, a key indicator measuring wage growth in the Eurozone has risen significantly, prompting the European Central Bank to maintain a cautious stance on further rate cuts. The European Central Bank stated on Friday that negotiated wages in the second quarter increased by 4% compared to the same period last year. This increase is higher than the 2.5% in the first quarter of this year but still below the peak of 5.4% reached in 2024.
The European Central Bank is confident in stabilizing the inflation rate at 2%, based on the expectation that wage growth will slow down and inflation in labor-intensive service sectors (currently around 3%) will also decline.
For the Eurozone, which consists of 20 member countries, its own compensation tracking data indicates that wage levels will see a significant decline by early next year. Although the German central bank reported a substantial increase in wage levels this quarter, it also expects wages to decline in the near future, "due to falling inflation rates and a poor economic environment."
Bloomberg economist Martin Ademmer stated, "The significant rise in the negotiated wage growth indicator may be due to one-time payments, which should be temporary. We expect wage pressures to ease in the coming quarters, which will help lower the still high inflation rate in the service sector. Given that recent data shows the region's economy remains stable in the face of U.S. tariff shocks, the European Central Bank may wait until December to take further monetary easing measures."
The market generally expects that when the European Central Bank reconvenes after the summer break in September, it will keep the key deposit rate unchanged at 2%, marking the continuation of the rate hold since the rate cuts that lasted for a year last year.
Most officials believe that the interest rates are at an ideal level, neither suppressing nor promoting economic activity. However, some have indicated that the possibility of further rate cuts should not be ruled out
