EUROPEAN ECONOMIC SURVEY: Q2 SAFE Survey Broadly Consistent With Lower Deflator

The ECB’s Q2 SAFE survey (Survey on the Access to Finance of Enterprises) indicated a moderation in the “forces compressing profitability” amongst Euro-area firms relative to the Q1 survey round, while selling price and wage growth expectations also fell.

• 12-month ahead selling price expectations eased to 3.0% Y/Y (vs 3.3% prior), wage growth to 3.3% (vs 3.8% prior) and overall inflation expectations to 3.0% (vs 3.4% prior).
• However, both selling price and wage growth expectations were more elevated amongst respondents in the services sector, consistent with services HICP inflation remaining sticky over the coming months.
• A key pillar of the ECB’s macroeconomic projections is that slowing profit growth should contribute to a (modest) fall in GDP deflator growth through 2024, despite still-elevated unit labour costs. 
• The SAFE survey’s results (less profit margin compression and falling wage expectations) may still be consistent with a moderation in 2024 GDP deflator growth, only with a slightly different composition of disinflation forces relative to the ECB’s projections.
• The sample consisted of almost 6,000 Euro-area firms, and the full write-up is here: https://www.ecb.europa.eu/stats/ecb_surveys/safe/html/ecb.safe202407~58a9f48351.en.html#toc8