Wage Growth Slows, ECB May Cut Rates

The recent economic boost from the Olympic Games is overshadowed by a significant slowdown in wage growth across the eurozone, raising concerns about the region's manufacturing sector. The European Central Bank (ECB) may consider an interest rate cut in response to this trend, which saw wage growth drop to its slowest rate since late 2022, falling from 4.7 percent in the first quarter. Pictet Wealth Management economist Frederik Ducrozet emphasized the need for the ECB to adjust its restrictive monetary policy promptly. Recent data from Eurostat indicates a decline in job vacancies, a critical indicator of labor demand, alongside a slowdown in overall labor costs for firms. A key business survey has also highlighted a persistent crisis in the manufacturing sector, particularly in Germany, suggesting that the region may face a year of stagnation. The ECB's Governing Council expressed concerns during its July meeting that the downturn in manufacturing could signify a more enduring loss of competitiveness rather than a temporary setback. Germany's economic struggles have been a consistent theme throughout the year, contributing to fluctuations in the S&P composite index for the eurozone. While the index rose to 51.2 in August, indicating slight growth, input prices at the producer level have reached an eight-month low, reflecting hesitance to accumulate unsold inventory. Despite the challenges, German unions continue to advocate for substantial wage increases, complicating the path toward wage moderation as projected by the ECB's forecasts.