The euro area labor market remains historically tight despite the rapid economic downturn. While the strength of the labor market raises the risk of rapid wage increases fueling inflation further, there is no evidence that the unemployment rate fell from 6.7% to 6.6% in July, continuing. continued a steady downward trend in the unemployment rate. This rate is now much lower than the natural rate of unemployment, indicating upward pressure on wages. At the same time, however, there is little evidence of this happening so far. Bargaining wage growth most Europeans see collective agreement-adjusted wages – rose at an annualized rate of 2.1% in Q2, still much lower than you’d expect if considering labor shortages and high inflation. The labor market is currently at an interesting turn. Business job expectations are dwindling and the economy is now entering a recession. Against the backdrop of tight labor markets in most eurozone economies, some degree of labor hoarding is expected to occur to ensure sufficient manpower once the economy recovery will go straight. The direction of wages is uncertain for the time being. We expect a tight labor market and high inflation to drive wage growth further. A recession will dampen the upside prospects, but it’s unlikely to wipe it all out together. However, signs of a wage price spiral remain absent. If a recession does strike, expect the unemployment rate to rise slightly from the current historic low.

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