Euro zone wages rise at fastest pace in 10 years

Euro zone wage growth accelerated at its fastest pace in a decade, underpinning the region’s economic expansion even as the export-led manufacturing sector suffers amid weakening global trade.

Euro zone wage growth rose 2.5 per cent in the first quarter, up from 2.3 per cent at the end of last year and the fastest pace since 2009, according to Eurostat data released on Monday.

The wage growth in the first quarter was well above the rate of inflation and the pace of wage expansion in the last three years, which averaged at 1.8 per cent, helping to support economic resilience in the region.

Mario Draghi, president of the European Central Bank, said at the bank's last meeting that "further employment gains and increasing wages continue to underpin the resilience of the euro area economy and gradually rising inflation".

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Separate Eurostat data, also published on Monday, showed that euro zone vacancy rates stood at 2.3 per cent in the first quarter, stable from the last quarter of 2018 and the highest rate in a decade.

In contrast, weakness in international trade and ongoing global uncertainties were reflected in a contraction in industrial production in the first four months of this year, compared with the same time last year.

“These are encouraging headlines” even though they are lagging indicators, said Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics. “Looking ahead, wage growth in the eurozone should now be picking up, in response to a tighter labour market, but the pace remains uneven across countries.”

Nearly all the 19 countries registered an expansion in wage growth over the previous year of above 2 per cent. Growth was at double-digit levels in many eastern European countries, while both France and Germany registered wage expansion at 2.8 and 2.5 per cent respectively. Only in Italy was wage growth consistently below 2 per cent in the last three quarters.

Italy’s “sluggish wage growth and feeble domestic demand will keep inflation below the euro zone’s average this year” said Massimo Bassetti, economist at FocusEconomics.

Euro zone “activity is seen slowing in 2019 as a tougher external backdrop in the eurozone” takes hold, said Angela Bouzanis, senior economist at FocusEconomics, but “the continuation of ultra-accommodative monetary policy, some fiscal loosening and growing wages will act as a buffer”. – Copyright The Financial Times Limited 2019