– More uncertainty – E24

There may be fewer interest rate cuts in the euro zone this year than previously expected.

– It's bad news, chief economist Marius Gunsholt Hof at Handelsbanken tells E24.

He is talking about the eurozone's negotiated wages figures for the first quarter, which were presented by the European Central Bank on Thursday.

The European Central Bank has previously demonstrated that numbers matter when assessing the level of future interest rates.

The figures showed record wage growth of 4.7 percent, compared to 4.5 percent in the fourth quarter of last year.

“If you have a wage level that over time is more in line with the inflation target, then we need to get down to around 3 percent wage growth in the eurozone,” says Hof.

It was expected among analysts that wage growth would stabilize or decline.

Wage growth is one of several important factors when central banks set the key interest rate, because higher wages will help put pressure on prices.

– Norges Bank will be delayed

The ECB has previously clearly indicated that the interest rate decision at the June 6 meeting will end with a rate cut.

“The expectation is that the interest rate will fall, and it is still fully priced,” says Hof.

He says the ECB is more ambiguous about interest rate expectations after June.

– Maybe this is where we see the changes. The European Central Bank has made three interest rate cuts this year, while two-and-a-half cuts are now priced in, the chief economist says.

“There's more uncertainty here now,” he adds.

Here at home, the level of interest rates abroad is important, among other things, for reasons related to the krone exchange rate. If interest rates abroad are higher than in Norway, the krone may weaken as it becomes more attractive to invest in markets with higher interest rates.

Handelsbanken this week changed its interest rate forecasts so that Norges Bank will not cut rates until the first quarter of 2025.

– Norges Bank will lag here, due to the interest rate differential and the krone exchange rate. I think it's easier now to say that the Norges Bank is waiting until next year to cut interest rates, says chief economist.

Chief Economist Kjersti Hoogland at DNB Markets also believes the ECB will cut interest rates when it meets on June 6.

– It remains highly likely that the European Central Bank will implement its first interest rate cut since September 2019 in less than two weeks, she wrote in her article. a report.

Uneven distribution

There was an uneven distribution of wage growth within eurozone countries: while wage growth slowed in France, Italy and Spain, strong wage growth was seen in Germany.

On an annual basis, German negotiated wages rose by 6.2 percent year-on-year.

For the first time in three weeks, German government bonds with a maturity of two years rose to more than 3%. Financial Times.

“This greatly challenges the idea that the ECB will deliver several successive interest rate cuts,” Tomáš Wildek, an economist at investment firm T. Rowe Price, told the newspaper.

in NB Posted on the European Central Bank's website, two of the bank's economists wrote that they expect wage pressure in the euro zone to moderate in 2024.

– Very likely

In a television interview with the Irish RTÉ News Earlier in the week, ECB Governor Christine Lagarde said it was “very likely” there would be a rate cut at the next meeting.

Inflation in the euro zone in April reached 2.4 percent. Like the Bank of Norway, the ECB is also moving towards a sustainable inflation target of 2 per cent.

– I am sure that inflation is under control. Why? Because some factors that had a significant impact began to disappear. “I think about the energy crisis and the supply-side bottlenecks,” Lagarde said in the interview.

-Doesn't grow too strong

The euro zone economy grew by 0.3 percent in the first quarter of this year, which is better than the central bank expected in its forecast.

At the same time, the so-called Purchasing Managers' Index (PMI), which gives an indication of how active the economy is, showed that there is growth in the economy.

The PMI level is the highest since May 2023 and is the third month of increased activity, Bloomberg writes.

There is no strong growth in the Eurozone now, but at the same time there was fear of a more pronounced setback and recession. But there is less risk of slowing growth. Here, the central bank will take the time to look to the future, Hof says.