ECB
ECB Vice President de Guindos said that there was “still a big question mark” around the expected recovery in Eurozone productivity growth, in an interview with Expresso released this morning. A lack of improvement in productivity growth will likely keep sequential ECB cuts off the table, in the absence of a more marked deterioration in the growth outlook.
- A rebound in productivity growth underscores the ECB’s forecast for a recovery in GDP and easing of unit labour cost growth in 2025 and 2026.
- Moderating unit labour cost growth is expected to be a key driver of services disinflation next year, with services HICP inflation set to hover around 4% Y/Y through the remainder of 2024.
- However, we have previously noted that the ECB’s projection of 0.9% real productivity growth in 2025 and 1.1% in 2026 appears optimistic, particularly given the anaemic trends seen in Q1/Q2 this year.
- Regular updates on productivity growth are only available on a quarterly basis, so shifts in the balance of risks to the ECB’s easing will be slow-moving. The scope for prior revisions also caveats the interpretation of the data on initial release.
- Nonetheless, it will be an increasingly important metric to track as rates move closer to assumed neutral levels.
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