Wage trajectories across the Eurozone’s biggest economies suggest that aggregated Euro area negotiated wage growth could pick up from 1.7% YY in 4Q-21 to slightly above 3% YY in early 2023.
US, Euro Area – Wage Growth (YY %) |
Euro Area: HICP and Compensation per Employee Indices (2015=100) |
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© 2022 Citigroup Inc. No redistribution without Citigroup’s written permission. |
© 2022 Citigroup Inc. No redistribution without Citigroup’s written permission. |
Source: Citi Research, Eurostat, ECB |
Source: Citi Research, Eurostat, ECB |
Citi Research analysts make five points as to why they think this is likely the case:
Ultimately, higher inflation in Germany should allow the periphery to run slightly higher inflation as well, which is beneficial for its debt sustainability. On the other hand, significant economic divergence within a monetary union is difficult to deal with by a single monetary policy. The policy stance may risk being set too tight for the periphery (Italy in particular which is looking to be the main laggard in the reflationary process) and generate renewed debt sustainability concerns.
Moreover, faster-growing Germany could also widen the social gap between wealthier core European nations and the periphery, reigniting the centrifugal forces in the Eurozone which had faded in recent years.
Euro Area: Negotiated Wages (%, YY) |
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© 2022 Citigroup Inc. No redistribution without Citigroup’s written permission. |
Source: Citi Research, ECB |
The full note provides a country-by-country guide to wage growth patterns across the Eurozone’s largest economies. To read it in full, please see European Economics Weekly - Eurozone Wage Growth Set to Reach 3%, first published on February 4th.
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