Euro area wage growth likely to remain subdued, says Danske Bank

Euro area wage growth continues to be low in spite of the ongoing labor market progress. However, consumers have gained recently from very high real wage growth due to the extraordinary low inflation.

The European Central Bank anticipates rising nominal wage growth; however, even if wages rise in line with the central bank’s projection, real wage growth is expected to be much lower than the last three years, noted Danske Bank in a research report. This will exert downward pressure on the growth of private consumption.

Moreover, the central bank’s forecast for wage growth is quite positive. Subdued wage pressure is expected to keep core inflation low, suggesting that there will not be a sustained adjustment in the inflation path, which the ECB needs to tighten its monetary policy, added Danske Bank.