This suggests that some degree of labour hoarding is taking place, likely reflecting firms’ expectations of a transitory weakness in demand, as well as their ability to absorb higher costs through increased mark-ups (a point I will return to). Recent data shows that wage growth accelerated throughout 2022 (Chart 2, right panel).
On the other hand, downside risks relate to the ongoing tensions in some segments of the financial markets and their potential spillover to the euro area real economy. Downside risks also relate to further increases in commodity prices, in particular in view of renewed geopolitical tensions, and to protectionist pressures and the possibility of a disorderly correction of global imbalances.