Economic and Strategy Viewpoint

July 2014

In this month's Viewpoint: US: Why worry about rising wages?, Eurozone: Making progress, The EM export recovery: are we nearly there yet? and Views at a glance.


Keith Wade

Keith Wade

Chief Economist & Strategist

Azad Zangana

Azad Zangana

Senior European Economist and Strategist

Craig Botham

Craig Botham

Emerging Markets Economist

US: Why worry about rising wages?

  • Wage growth in the US looks set to accelerate judging from recent surveys, but should we worry about rising pay, which after all means better living standards for many? Any concern seems particularly misplaced as empirical surveys find little evidence of a link from wages to inflation.
  • The link from wages to prices may be weak, but there is a strong correlation between unit labour costs and prices. Wage increases have little price impact if matched by productivity gains. The problem for the US is that productivity growth has dropped in the wake of the global financial crisis. Stronger wage growth is set to translate into higher labour costs and increased inflation, bringing pressure for tighter monetary policy from the Fed.

Eurozone: Making progress

  • Recent softer data have raised fears of a potential slump in Eurozone activity. However, in comparison to our more subdued forecast, this is not a surprise given the still restrictive credit conditions.
  • In order to unlock higher growth, the ECB must build on the improvements seen in credit conditions and the increase in the demand for credit. Higher growth is essential to reduce the Eurozone’s vulnerability to any future macro or political shocks.

The EM export recovery: are we nearly there yet?

  • The emerging market export recovery is seemingly always on the horizon, never arriving. But there are signs of a modest pick up in some EM economies. We find evidence that this time around, the export recovery will be more selective than in the past.

Views at a glance

  • A short summary of our main macro views and where we see the risks to the world economy.