Euro macro: French wage growth subdued – Wage growth in France came in weaker than expected in Q3. Preliminary data from France’s labour ministry showed that wage growth in the private sector declined to 0.3% qoq in Q3, down from 0.4% in Q2. Compared to a year before, wages were up by 1.5% in Q3, the same rate as in Q2. Moreover, the yoy growth rate of Q3 was only marginally higher than the 1.4% yoy that was recorded in the third quarter of 2017, illustrating that there is hardly any upward pressure. We think this reflects the fact that, despite the sharp drop in the unemployment rate since the middle of 2015, there still is significant slack in France’s labour market. Indeed, the unemployment rate (at 9.3% in September) is still well above the pre-crisis level of somewhat above 7%. On top of that, the broader U6-indicator of labour market slack, which includes those temporarily employed those who would like to work longer hours, as well as people that are inclined to enter the labour market soon, was 17.7% in Q2, well above the pre-crisis level of somewhat below 15%. Finally, planned reforms of the unemployment system and ongoing liberalisation of the labour market probably have lowered the level of unemployment that would trigger wage growth acceleration (the NAIRU).
All in all, we expect wage growth in France to remain subdued for a considerable time. The low level of wage growth in France means that underlying inflationary pressures remain weak as well. We think developments in France are representative for the eurozone as a whole, where wage pressure will take a while to build significantly, with the exception of a handful of countries where the labour market is already tightening, such as Germany and the Netherlands. (Aline Schuiling)