The European labour market softened in the third quarter, data releases showed on Monday, pointing to a further decline in inflation pressures that could justify more interest rate cuts.
The rise in eurozone labour costs slowed to 4.6% in the third quarter from 5.2% three months earlier, while the jobs vacancy rate slipped to 2.5% from 2.6%, extending a decline that has lasted for most of the past two years, data from Eurostat showed.
An especially tight labour market is the biggest reason the European Central Bank has been cutting rates cautiously, worried that quickly rising incomes will put upward pressure on domestic service sector costs.
While firms are maintaining high levels of employment, essentially hoarding labour in anticipation of an eventual recovery, they have significantly reduced new hiring.
Among the eurozone’s biggest countries, Germany recorded the biggest drop in labour cost inflation, with the figure dropping to 4.2% in the third quarter from 6.0% three months earlier.
Key wage agreements reached by Germany’s largest labour unions signal an even larger decline in the months ahead, as the country’s economy, the largest in the bloc, is expected to shrink for the second consecutive year in 2024 due to weak export demand and persistently high energy costs.
Incomes adjusted for inflation have now largely recovered to their levels before the recent spike in price growth, but workers have not seen significant additional gains. On the other hand, companies argue that weak productivity growth offers little justification for further real income increases.
The job vacancy rate, or proportion of total posts that are vacant, fell to below 2% in manufacturing and eased or stagnated in almost every job category.
