Q4 Accounts Underscore Need For Q1 Data Before Easing Begins

The final Q4 national accounts confirmed a deceleration of the Eurozone GDP deflator to 5.3% Y/Y (vs 5.9% in Q3). Details suggest that unit profits buffered rises in unit labour costs (ULCs), consistent with the ECB's central projections in its updated forecasts.

• However, the Q4 readings of wage growth and productivity remain incompatible with the 2% HICP inflation target, underscoring the majority of the Governing Council's view that an analysis of Q1 2024 developments is required before starting the policy easing cycle.
• The ECB's March macroeconomic projections looked for a Q4 GDP deflator rise of 5.4% Y/Y.
• Of the 5.3% Y/Y rise in the GDP deflator, MNI's calculations suggest ULCs contributed 2.75pp (vs 3.11pp in Q3), while unit profits contributed 1.42pp (vs 2.04pp in Q3).
• ULCs rose 5.8% Y/Y in Q4 (vs 6.5% in Q3) and 1.3% Q/Q (vs 1.6% prior). The Y/Y rise was in line with the ECB's projections.
• The moderation in ULCs came after the growth in total compensation of employees fell to 5.0% Y/Y from 6.3%, while real productivity per hour worked (-1.2% Y/Y fall) and total hours worked (1.2% Y/Y rise) broadly offset each other.
• Total compensation per employee, which the ECB forecasts rather than total compensation overall, moderated to 4.6% Y/Y (vs a downwardly revised 5.1% prior). Yesterday's projections saw this at 4.8% Y/Y.
• As indicated in the preliminary national accounts last month, real productivity per employee was -1.1% Y/Y, below the March ECB forecast of -0.9% Y/Y.