Euro Area – Strong labour market amid cooling demand

Danske Research Team Danske Bank A/S

The euro area labour market remains robust, while signs of cooling are evident. Amid record-low unemployment rates, recent survey data indicates moderating employment growth, and we expect aggregate employment growth to slow this year and the unemployment rate to decline marginally.

The labour market has shown remarkable resilience amidst slow economic growth and higher interest rates since 2022. By May 2025, the unemployment rate declined to 6.3% from 6.8% in May 2022 and employment continued to rise by 0.2% q/q in 2025Q1. However, employment growth is slowing compared to recent years and both Germany and France recorded job losses in the first quarter. The European Commission expects job losses in France and Germany to continue in 2025, with -0.2% y/y growth in both countries, while strong employment growth is expected to continue in Spain at 2.1% y/y. We thus expect the convergence in unemployment rates between Southern and Central Europe to continue.

Yet, labour demand is cooling. The job vacancy rate has declined from 2.9% in Q1 2024 to 2.4% in Q1 2025. The services sector vacancy rate is 2.7%, with the industrial sector weaker at 2.1%. Business surveys also show a reduction in firms citing labour as a production constraint. In April 2025, service-sector constraints fell to 22.9% from 34.1% in April 2024, while industrial constraints dropped to 18.2%, which showcases the relatively weaker labour demand in the industry. Finally, the EC's Employment Expectations Indicator (EEI) have remained below long-term average since 2024, indicating cautious hiring. However, actual employment data has been better, defying these signals. Overall, the euro area labour market thus continues to show resilience, amid a gradual normalization of labour demand, which we expect to lead to an increase in employment of 0.5% y/y in 2025 and 2026, and a marginally lower unemployment rate over the coming 12 months. Upside risks to the outlook includes the German fiscal package and defence spending, which increases hoarding motives. On the other hand, trade uncertainty and the declining profit share of firms, which now stands at the lowest level in 25 years when excluding the COVID period, are downside risks to the outlook.

Despite the strong labour market, wage growth is declining. The ECB wage tracker points to a reduction in negotiated wage growth to 3.1% y/y in Q4 2025 from 4.7% y/y in Q4 2024, and by Q1 2025, compensation per employee grew only 3.8% y/y. Wage growth is strongest in construction and services, while the industrial sector shows moderation. Easing labour cost pressures bolster ECB's disinflation efforts, but the tight labour market present upside risks to wage growth in the coming years.

Finally, demographics will keep the unemployment rate low in coming years despite cooling employment growth as the labour force is expected to grow less than employment. Between 2022 and 2024, the working-age population grew around 0.4% annually which was largely driven by foreign labour compensating for the decline in the domestic working population that is especially pronounced in Germany.

Download The Full Research Euro Area

Author

Danske Research Team

Danske Bank A/S

Research is part of Danske Bank Markets and operate as Danske Bank's research department. The department monitors financial markets and economic trends of relevance to Danske Bank Markets and its clients.

EUR/USD flirts with daily highs, retargets 1.1900

EUR/USD regains upside traction, returning to the 1.1880 zone and refocusing its attention to the key 1.1900 barrier. The pair’s slight gains comes against the backdrop of a humble decline in the US Dollar as investors continue to assess the latest US CPI readings and the potential Fed’s rate path.

GBP/USD remains well bid around 1.3650

GBP/USD maintains its upside momentum in place, hovering around daily highs near 1.3650 and setting aside part of the recent three-day drop. Cable’s improved sentiment comes on the back of the Greenback’s irresolute price action, while recent hawkish comments from the BoE’s Pill also collaborate with the uptick.

Gold clings to gains just above $5,000/oz

Gold is reclaiming part of the ground lost on Wednesday’s marked decline, as bargain-hunters keep piling up and lifting prices past the key $5,000 per troy ounce. The precious metal’s move higher is also underpinned by the slight pullback in the US Dollar and declining US Treasury yields across the curve.

Crypto Today: Bitcoin, Ethereum, XRP in choppy price action, weighed down by falling institutional interest

Bitcoin's upside remains largely constrained amid weak technicals and declining institutional interest. Ethereum trades sideways above $1,900 support with the upside capped below $2,000 amid ETF outflows.

Week ahead – Data blitz, Fed Minutes and RBNZ decision in the spotlight

US GDP and PCE inflation are main highlights, plus the Fed minutes. UK and Japan have busy calendars too with focus on CPI. Flash PMIs for February will also be doing the rounds. RBNZ meets, is unlikely to follow RBA’s hawkish path.

Ripple Price Forecast: XRP potential bottom could be in sight

Ripple edges up above the intraday low of $1.35 at the time of writing on Friday amid mixed price actions across the crypto market. The remittance token failed to hold support at $1.40 the previous day, reflecting risk-off sentiment amid a decline in retail and institutional sentiment.