ECB survey: 40% of euro zone firms brace for higher wage

Summary

ECB's quarterly survey of large euro zone firms found 40% expect or see risk of higher wage demands, up from 20% in July.
Wage growth is still expected to slow overall, from 3.2% last year to 2.9% next year, but more gradually than previously forecast.
Around 90% of consumer-facing firms say they can only partially pass higher costs on to customers.
The findings came a day after the ECB held interest rates steady and President Christine Lagarde announced she would step down early.
Lagarde said the bank is watching closely for second-round inflation effects but has not yet seen clear evidence of them.

A European Central Bank poll of large euro zone companies shows 40% now expect or see a risk of higher wage demands, double the share recorded three months ago, as a cost-of-living surge tied to the Iran war works through the economy.

Large companies across the euro zone are bracing for tougher wage negotiations in the months ahead, according to a European Central Bank survey published on Friday. Forty percent of respondents said they either expect higher wage demands or see a clear risk of them, double the 20% recorded in the previous survey round in July, Reuters reported.

The shift reflects a surge in the cost of living triggered by the war in Iran, which has pushed up prices for energy and other goods. Workers facing higher living costs are, in turn, pressing employers harder for pay rises to keep up.

Wage growth still slowing, but more gradually

Despite the uptick in wage demands, the ECB survey still points to a gradual slowdown in overall pay growth. Companies expect wage growth of 3.0% this year, down from 3.2% last year, and 2.9% next year. That trajectory is slower than previously forecast, but the deceleration itself is expected to be more gradual than companies predicted in July.

A separate ECB indicator, its wage tracker based on signed collective agreements, points to negotiated wage growth of around 2.7% heading into the first half of 2027, suggesting the pressure building in company expectations has not yet fully shown up in formal contracts.

Firms struggle to pass on costs

The survey also found that companies are finding it hard to pass rising costs on to customers. Around 90% of consumer-facing firms said pass-through to selling prices was only partial or limited, a far higher share than among business-to-business companies, less than half of which reported the same constraint. Selling price growth is expected to moderate somewhat in coming months, although many firms expect cost pressures to persist into next year as hedges expire and agricultural prices rise.

Investment patterns remain uneven. Spending is concentrated in artificial intelligence, cloud computing, data centres, defence and electrification, areas boosted by strong demand from public-sector and healthcare clients. Steelmakers have benefited from trade protections, but chemicals, food and textiles companies have cut investment amid high costs, weak demand, foreign competition and political uncertainty.

Lagarde departure and rate decision

The survey results landed a day after the ECB kept interest rates unchanged at its policy meeting on Thursday, while signalling that it had debated whether a rate hike might be warranted. On the same day, ECB President Christine Lagarde announced she would step down from her post early.

We’re seeing some indirect effect, but we are certainly not seeing second-round effects, said Christine Lagarde, President of the European Central Bank.

And that is something that we need to be very attentive to, Lagarde added.

Her comments suggest the ECB sees the current rise in wage expectations as a response to a specific cost shock rather than the start of a broader wage-price spiral, though policymakers are watching the trend closely as bargaining rounds continue across the currency bloc.

This article was researched and drafted with AI assistance and reviewed by Lasse Pedersen before publication. How we use AI

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