Together with solid earnings expectations and firms’ balance sheets, these favourable funding conditions should support business investment. Labour market dynamics remain strong, with euro area unemployment at 7.9% in December, its lowest level in more than ten years. Rising wages should continue to underpin household income and private consumption.
Lower energy prices are supporting real incomes and should provide an additional impetus to domestic demand. Turning to inflation, high levels of capacity utilisation should continue to strengthen labour cost pressures. Growth in compensation per employee increased to 2.5% in the third quarter of 2018, having increased steadily since 2016. Growth in negotiated wages also picked up in the course of 2018.