Europe's Labour Market Shifts: Implications for Economic Policy

The European labour market softened in Q3, with declining labour costs and job vacancy rates, indicating lowered inflation pressures. This supports potential ECB rate cuts as wage growth moderates and firms reduce new hirings despite retaining current employees. Germany sees significant drops in labour cost inflation.

Europe's labour market exhibited signs of softening in the third quarter, according to data released on Monday. This trend points to a potential easing of inflation pressures, which could further justify more interest rate cuts by the European Central Bank (ECB).

The euro zone's labour costs increased by 4.6% in the third quarter, down from 5.2% previously, while job vacancy rates decreased to 2.5%. These indicators suggest a prolonged decline over the past two years, as reported by Eurostat.

Germany reported the most notable reduction in labour cost inflation, dropping from 6.0% to 4.2%. As income levels adjusted for inflation return to normal, companies remain cautious in granting wage increases due to weak productivity growth.

(With inputs from agencies.)