ECB
The ECB’s projections for the GDP deflator and its core components were little changed at the end of 2026, with most forecast revisions occurring in 2024 and 2025. Overall, GDP deflator growth is expected to continue moderating, with unit profits seen absorbing unit labour cost increases through 2024. Profits are expected to recover in 2025, but this is dependent on “the economic recovery and strengthening productivity growth”.
- The projection for labour productivity has been revised a tenth lower in 2024 and 2025, but is still expected at 1.1% by 2026 (as in the June projections). Following the weak Q1 and Q2 ’24 productivity outcomes, we still view a rebound to ~1.0% annual growth from next year as a little optimistic.
- Compensation per employee has been revised a little lower in 2024, before settling at 3.0% by Q4 2026. Note that the downward revision does not account for the lower-than-expected 4.3% reading in Q2, potentially setting the stage for further downward surprises in the coming quarters.
- The above implies a slightly lower trajectory for unit labour cost growth. Combined with a lower forecast for unit profits, there is a small downward revision to GDP deflator growth in 2024 and 2025.
- See the chart pack below for an illustration:
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