Euro Macro: Key measures of wage growth have slipped over recent months – A number of different measures of eurozone wage growth are published every quarter. Although wage growth according to the different definitions can vary on a quarterly basis, all series tend to broadly move in the same direction during economic cycles. All measures of wage growth have accelerated during the past few years, from levels of around 1.0-1.5% yoy in 2015 and 2016, to levels of around 2-2.5% in 2018. However, the numbers for 2019Q1-Q2 indicate that wage growth has stopped rising and peaked in 2018 H2. Indeed, the definition used by the ECB in its own projections, compensation per employee, rose by 2.4% yoy in 2018Q3 and has subsequently declined to 2.1% in 2019Q1. As this definition of wage growth includes changes in social security payments by employers it can be influenced by policy changes. Indeed, changes in France’s labour market taxes and social security payments at the start of 2019 have had a sharp downward impact on compensation per employee in France. Nevertheless, even If we take this one-off effect into consideration the eurozone total would have been 2.2% in 2019Q2, which still is a slowdown from 2018Q3. Another definition of wage growth that is also closely watched by the ECB is negotiated wages, which excludes the impact of taxes. The rise in negotiated wages has declined from 2.3 in 2019Q1 to 2.0% in 2019Q2. Looking further ahead, we expect wage growth to continue to slow down gradually over the coming quarters. The decline in unemployment in the eurozone has already slowed down in recent months whereas the employment component of the composite PMI has dropped to levels consistent with stagnating employment growth and modestly rising unemployment. Combined with ongoing subdued inflation and inflation expectations, this should push wage growth down further. (Aline Schuiling)
UK Macro: Supreme court ruling shows courts are willing to intervene – The UK Supreme Court ruled that PM Johnson’s suspension of parliament in the run-up to the Brexit deadline of 31 October is unlawful. As a result, parliament will sit again from Wednesday onwards, though the court does not prevent the PM from proroguing parliament again as long as he does not prevent it from carrying out its duties. Indeed, Mr Johnson said that there was ‘a good case for getting on with a Queen’s Speech anyway’, raising the possibility of a shorter and more conventional suspension. The ability of parliament to sit for more days between now and 31 October does not really directly change the outlook. However, it does signal that the UK courts would intervene to ensure that the government sticks to the law. This is particularly relevant given the legislation passed by the UK parliament that legally obliges the PM to ask the EU for a Brexit delay in the event that no deal is agreed (by 19 October) and MPs vote against leaving with no deal. As such, the chances of a no-deal Brexit in the near term appear to have declined further, as the courts would likely intervene again in case the government were to choose to try and get round the law against no deal.
Looking further out, all scenarios remain on the table. We expect an election in late November or early December. The outcome of such an election is highly unpredictable and could either lead to a government that would favour a no-deal Brexit or one that promises a referendum with remain on the ballot paper (see our note here for more on this). (Nick Kounis & Bill Diviney)