Recent data on the euro-zone’s labour market have been encouraging. December’s decline in the unemployment rate to 9.6% left it at its lowest since May 2009. We expect the labour market recovery to continue this year, albeit at a slower pace. On the face of it, this suggests that annual hourly wages growth will accelerate from Q3’s 1.5%. But we doubt that wages will pick up sharply. The employed work fewer hours than they did at the start of 2008, suggesting that there is still slack in the labour market. Moreover, unemployment is lowest in countries like Germany where wage growth has historically been very subdued. And survey measures of hiring intentions point to a slowdown in employment growth.
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