“For the ECB, this means that the pressure to lower interest rates from current restrictive levels quickly will increase,” said Colijn.
After the bank’s rate cut earlier this month, most had expected it to hold off until December before moving again given that this would coincide with its next update of forecasts for growth and inflation. However, some — such as Bank of Portugal Governor Mario Centeno — had urged the ECB to keep its options open, given the changing economic situation.
That’s due not least to the fact that the eurozone labor market, which has largely remained resilient to the economic problems caused by Russia’s invasion of Ukraine, is starting to look less healthy. Vacancies have fallen around the region; while in Germany, the seasonally adjusted jobless rolls rose by 17,000 this month to 2.8 million, the highest since late 2020.
German manufacturing has been struggling with a combination of high energy prices and competition from abroad, especially from China. Earlier in September, flagship automaker Volkswagen announced it was considering shutting a plant in Germany — an unprecedented move in its 87-year history. Hopes for job creation in newer industries, meanwhile, have also taken a knock since chipmaker Intel put on ice plans for a massive new factory in the eastern German city of Magdeburg.
“The consumer recovery could stall if the labor market cools any further,” said Marc Schattenberg of Deutsche Bank Research in emailed comments, although he noted employment was still tending slightly higher. It should, however, be noted that German employment data lag two months behind unemployment numbers.