Labour shortages little threat to German wage restraint

There is less spare capacity in Germany’s labour market than elsewhere in the euro-zone, and economic activity is set to regain its pre-crisis level before long. However, we think wage inflation (which has fallen sharply in the past year) will increase only gradually and will remain too low rather than too high.
Andrew Kenningham Chief Europe Economist
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European Economics Weekly

Reopening effects to persist in Q3

The surge in German inflation, to 3.8% on the national CPI measure in July, may have got some pulses racing in Frankfurt, but core euro-zone inflation remains very low and we continue to think that the ECB will struggle with excessively low inflation over the medium term. Next week we expect to learn that euro-zone retail sales rose again in June and the Composite PMIs for Spain and Italy increased in July.
 

30 July 2021

European Data Response

Euro-zone GDP and Employment (Q2)

After increasing more than expected in Q2, thanks to strong growth in the southern economies, euro-zone GDP should expand rapidly again in Q3 as core economies close in on their pandemic levels. China slowdown webinar: Join us on Thursday, 5th August for a special webinar assessing the impact of China’s economic slowdown on the global recovery. Neil Shearing will lead a discussion with economists from across our economics and markets services to assess whether investors should brace for fresh volatility with China poised for a structural deceleration. Register here for sessions at 0900 BST/1600 HKT or 1100 ET/1600 BST.  

30 July 2021

European Data Response

Euro-zone Flash HICP (July)

Euro-zone inflation resumed its upward trend in July and we expect it to rise further in the remainder of the year. But this is largely due to temporary factors, which should fade in 2022.

30 July 2021

More from Andrew Kenningham

European Economics Update

ECB’s new target marks death of Bundesbank tradition

If confirmed, the ECB’s decision to adopt a 2% inflation target and allow room to overshoot it if needed would mark a historic shift towards the mainstream for the ECB. It would have no immediate implications for monetary policy, but in the longer run may imply policy would be looser for longer.

8 July 2021

European Chart Book

Activity taking off as hospitality reopens

The economy has continued to rebound strongly as governments have lifted almost all restrictions on retail and restaurants and eased rules on foreign travel. Restaurant bookings are back above pre-pandemic levels and the number of flights is rising steeply (no pun intended!). This rebound is likely to put a bit more pressure on inflation, which looks set to resume its upward course in the second half of the year after pausing in June. The latest statements from key policymakers suggest that the ECB is in no hurry to scale back its asset purchases, but we think the Governing Council will begin to taper its bond-buying in the coming months.

7 July 2021

European Data Response

German Industrial Production (May)

The small decline in German industrial production in May, which left it well below its pre-pandemic level, was due to another big fall in vehicle production. The problems in that, admittedly important, sector are likely to be resolved only gradually, but otherwise the German economy is recovering strongly.

7 July 2021
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