Another year with high labor costs increases in CEE

Erste Bank Research Team Erste Bank

On the radar

On Wednesday, the US Federal Reserve's rate-setting committee left interest rates unchanged.
Today, at 10 AM CET, Poland will publish industrial output growth, producer prices as well as employment and wage growth in February.
At 11 AM CET, Croatia will release February’s unemployment and January’s real wage growth.
Slovakia should publish unemployment rate while Serbia current account data.

Economic developments

In the fourth quarter of 2024, the hourly labor costs rose by 4.3% in the EU compared with the same quarter of the previous year. Throughout 2024, the growth was at 5.2% in the EU. Within the EU, the highest increases in hourly wage costs in the fourth quarter of 2024 for the whole economy were recorded in Croatia (+13.9%), Poland (+13.8%), and Romania (+13.1%). If we look at the whole of 2024, nominal labor costs increased the most in these three countries as well. Serbia also recorded very dynamic growth of labor costs above 13% in 2024. In general, 2024 was yet another year with very high, double-digit wage and salary increases reflecting inflation development in years prior to 2024. Only in Czechia, Slovenia, and Slovakia were wage increases more moderate. As inflation has been easing, we expect that the growth dynamics of labor costs will slow down in 2025.

Market developments

On Wednesday, the FOMC (Federal Open Market Committee), the US Federal Reserve's rate-setting committee, left interest rates unchanged. The upper limit of the federal funds target rate remains at 4.50%. The change in economic growth forecasts was significant. While in December, growth of 2.1% was still expected for the fourth quarter of 2025, the current forecast has fallen to 1.7%. At the same time, the inflation expectation (PCE) rose. Regarding other global news, Ukrainian President Volodymyr Zelenskiy agreed to a proposal for a mutual halt to strikes on energy assets as an initial step to end the war. Locally, Polish central banker Maslowska said she would support a rate cut at the end of 2025 or the beginning of 2026 as currently inflation is way above the 2.5% central bank’s target. The FX market is stable while long-term yields are slightly lower this week.

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Erste Bank Research Team

Erste Bank

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