In a speech in Dublin, ECB chief economist Philip Lane announced that Euro zone wage growth is expected to slow next year, despite strong inflationary pressures. The European Central Bank will maintain a restrictive monetary stance, holding back economic growth due to the high level of uncertainty and elevated price pressures in indicators for domestic inflation, services inflation, and wage growth.
Lane emphasized that the ECB is not committing to additional policy easing after the rate cut and decisions regarding further moves will depend on incoming data on a meeting-by-meeting basis. The key driver of inflation, wage growth, is currently high but is expected to slow down next year. This decline in wage growth is forecasted to contribute to a projected decrease in inflation in 2025. Additionally, corporate profit margins are expected to decrease, absorbing some of the wage increases and alleviating pressure on consumer prices.
Although economic growth has improved, it is not anticipated to significantly raise price pressures as demand in sectors sensitive to interest rates remains subdued. Despite this improvement, the market expects only modest rate cuts over the next 18 months.
