With vaccines improving the economic outlook and labour market data surprising to the upside, we have revised down our unemployment forecasts for almost all major economies. But wider measures of labour market slack imply a growing divergence by region. While hidden spare capacity should keep wage growth subdued in Europe, there is evidence of labour market tightness in the US and Australia which could cause pay pressures to intensify. Pay growth will do little to boost inflation rates in most EMs.
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