Euro-area GDP growth likely to gradually recover over 2020 amid gentle fall in jobless rate, says Oxford Economics

Euro-area’s GDP growth is expected to recover gradually over the year ahead amid a gentle fall in the unemployment rate and improved productivity growth, according to the latest research report from Oxford Economics.

These factors will support wage increases, which is expected to remain comfortably above 2 percent y/y in nominal terms during 2020. Real wages will also expand, by around 1 percent y/y as inflation stays low.

However, wage increases will still moderate slightly compared to last year. GDP growth and inflation are set to remain weak, and in such an environment firms are reluctant to raise their prices. This is likely to harden their position in wage negotiations.

"But our Phillips Curve analysis suggests some upside risk to our earnings forecast if firms cannot contain these wage pressures in the face of a tight labour market," the report added.

"Our wages outlook means households’ real incomes are set to expand at a slightly slower pace this year, so we think private consumption growth will also slip a little. We expect core inflation to move sideways during 2020 as firms remain hesitant to increase prices, despite low unemployment."