ECB Indicator Shows Eurozone Wage Growth To Slow Sharply To 3.1% This Year

(RTTNews) - A measure, based on the collective bargaining agreements in the euro area, suggested that negotiated wage growth is set to ease significantly this year, the European Central Bank said on Wednesday, which adds to expectations of inflation staying near the 2 percent target.

The ECB wage tracker, which covers active collective bargaining agreements in Eurozone, suggested that negotiated wage growth with smoothed one-off payments is set to drop to 3.1 percent this year from 4.7 percent last year, a monthly survey by the European Central Bank revealed. The growth rate for this year is unrevised from the previous release in late April.

The headline indicator also suggested wage growth of 1.7 percent in the fourth quarter this year, which is slightly above the 1.6 percent signaled in April. In the fourth quarter of 2024, the euro area wage growth peaked at 5.4 percent.

With unsmoothed one-off payments, the average negotiated wage growth is set to be 2.9 percent this year, which is much lower than the 4.9 percent last year.

"Forward-looking information confirms negotiated wage growth set to ease over course of year, consistent with data published following April 2025 Governing Council meeting," the ECB said.

The tracker covered wage agreements signed up to mid-May 2025.

"The downward trend of the forward-looking wage tracker for the remainder of 2025 partly reflects the mechanical impact of large one-off payments that were paid in 2024 but drop out in 2025, and the front-loaded nature of wage increases in some sectors in 2024," the ECB said. The wage tracker excluding one-off payments, which reflects the extent of structural or permanent negotiated wage increases, indicates growth of 4.2 percent in 2024 and 3.8 percent in 2025, the bank added.

In the latest round of macroeconomic projections released last week, the ECB staff forecast the yearly growth rate of compensation per employee in the euro area to be 3.2 percent this year, with a quarterly growth of 3.5 percent in the first quarter, 3.4 percent in the second quarter, 3.1 percent in the third quarter, and of 2.8 percent in the fourth quarter.

The slowing wage growth is set to strengthen the ECB's hope that inflation will stabilize at the 2 percent goal over the course of the year. Last week, the central bank cut interest rates further by 25 basis points and economists think that the bank is nearing a pause in its easing cycle.

The euro area jobless rate fell for the first time in four months in April, down to a record-low 6.2 percent.