EUROZONE DATA: Q2 Productivity Per Employee Raises Doubts Over ECB Projections

The first estimate of Q2 productivity per employee raises questions as to whether the ECB’s 2025 and 2026 forecasts for productivity growth are attainable. Should productivity growth fail to grow at or above 1.0% in the next two years (as is currently projected), a larger moderation in wage growth will be needed to be consistent with the 2% inflation target.

• Q2 real productivity was -0.4% Y/Y, a touch above Q1’s -0.5% but still a tenth below the ECB’s June projection of -0.3% Y/Y. 
• Although Q2 productivity rose 0.1% on a quarterly basis (the first sequential rise since Q3 2022), stronger growth will be required to meet the ECB’s projections over the next two years (base effects may not provide enough of a positive impulse to the Y/Y readings).
• At a country level, productivity per employee fell in Germany and Italy, but rose in Spain and France in Q2.
• A pickup in productivity growth underscores the ECB’s projection of 1.4% and 1.6% real GDP growth in 2025 and 2026. Employment growth is expected to level off ahead (though remain positive), after growing at a solid pace post-pandemic.
• Further details on Eurozone productivity (on an hours-worked basis) will be available in the full Q2 national accounts, due September 6, before the ECB meets on September 12 (where a 25bp rate cut is expected).