Eurozone negotiated wage growth slows in the fourth quarter

Negotiated wages in the Euro Area increased by 4.12% year-on-year in the fourth quarter of 2024, slowing from the 31-year high of 5.43% recorded in the previous quarter.

Eurozone negotiated wage growth slows in the fourth quarter

The moderation in wage growth provided some relief for European Central Bank policymakers, who have been closely monitoring labor costs as they work to bring inflation back to target while supporting sluggish economic growth. With inflation gradually easing, the ECB has recently signaled its intention to continue loosening monetary policy, with money markets currently pricing in at least two interest rate cuts by the end of December. However, policymakers remain cautious about the potential for wage pressures to reaccelerate, particularly in sectors still experiencing labor shortages.

Eurozone firms expect wage growth to slow in 2025

A mid-February survey from the ECB indicated that Eurozone firms expect wage growth to slow to 3.6% in 2025 from 4.3% in 2024, before further declining to 2.7% in 2026. This downward trend suggests that businesses anticipate a cooling labor market in the coming years, which could help alleviate inflationary pressures. However, uncertainty remains over whether slower wage growth will be sufficient to boost purchasing power and consumer demand, particularly as economic activity in the Eurozone continues to show signs of weakness.

Full-year figures

For the full year 2024, negotiated wage growth edged up to 4.48% from 4.44% in 2023, marking the highest annual increase since 1993. This sustained wage growth reflects the lingering effects of inflation-driven pay adjustments across various sectors, as workers and labor unions continue to push for higher wages to offset the cost-of-living crisis seen in previous years. Looking ahead, ECB policymakers will likely remain focused on wage dynamics as a key factor influencing their rate decisions, balancing the need for economic stimulus with the risks of persistent inflation in services and other labor-intensive industries.