Main findings from the ECB’s recent contacts with non‑financial companies

Prepared by Catherine Elding, Richard Morris and Moreno Roma

Published as part of the ECB Economic Bulletin, Issue 5/2024.

This box summarises the findings of recent contacts between ECB staff and representatives of 62 leading non-financial companies operating in the euro area. The exchanges took place between 17 and 26 June 2024.^[1]

Contacts reported a gradual pick-up in activity in the second quarter of the year, amid increasing signs of a modest, consumption-led recovery (Chart A and Chart B, panel a). Growth was still led by services, but manufacturing activity was bottoming out and construction was showing first signs of stabilisation. The investment outlook remained subdued, however, with uncertainty remaining high. Growth in the euro area still lagged that in the United States and Asia, but contacts also pointed to weaker than expected growth in China and its consequences for global prices and competition. Within the euro area, growth in southern Europe continued to outpace that in northern Europe.

Chart A

Summary of views on activity, employment, prices and costs

(averages of ECB staff scores)

Chart B

Evolution of views on developments in and the outlook for activity and prices

(averages of ECB staff scores)

Contacts were slowly becoming more confident that a consumption-led recovery was taking shape, albeit an uneven and modest one. Most retailers described activity – including, notably, sales of clothes and consumer electronics – as stable or growing. Sales of household appliances were still contracting or only starting to bottom out at a low level, but contacts increasingly attributed this to ongoing weakness in residential construction activity. Contacts in the intermediate goods sector mostly reported stable or modestly growing activity, which they increasingly interpreted as reflecting an improvement in consumption dynamics and not just an end to the protracted destocking cycle which had characterised much of last year. Consumer services activity continued to grow steadily, although growth in travel and tourism was limited by supply constraints and increased price-sensitivity among consumers.

The outlook for investment remained subdued. Contacts from firms producing capital goods pointed to still falling demand. They noted in particular that investment was held back by continued uncertainty surrounding the green transition. This was typified by the automotive sector, where growth in sales of electric vehicles had moderated following the removal of most government subsidies, resulting in less investment in the related supply chain. The downsizing of energy-intensive industries also weighed on investment demand. Construction activity was said to be either contracting or reaching a trough, and still affected by the combined effect of higher interest rates and higher input costs. There were, however, more encouraging signals from the real estate sector, where transactions in the secondary housing market were starting to recover. Meanwhile, investment in digital infrastructure and services (including data centres, 5G network technology, artificial intelligence, cloud computing and cybersecurity) continued to grow strongly and remained an important driver of growth in business services activity.

Overall business sentiment was still relatively mixed, against a backdrop of continued uncertainty. In addition to citing regulatory uncertainty, as well as a burden of extra paperwork, related to the green transition, contacts expressed growing concerns about EU-China trade relations and about the political situation following the European Parliament elections. This offset to some extent the support that the recovery of real wages and the easing of monetary policy were expected to provide to growth.

Contacts reported a broadly stable employment outlook, which represents a slight improvement compared with recent survey rounds. Most notable in this regard was the feedback from employment agencies, where contacts reported placement activity starting to bottom out or rise again after several quarters of mostly declining business. While contacts in the services sectors generally described a stable or improving employment outlook, the trend in manufacturing was, on average, still slightly negative. Many contacts emphasised efforts to raise productivity through investment in digitalisation and/or artificial intelligence, in response either to wage growth or to labour and skills shortages.

Contacts reported moderate price growth overall and expected this to continue in the following quarter, with price growth still stronger in services than in industry (Chart A and Chart B, panel b). Price growth remained strongest in the business and consumer services sectors, driven by wages and growing demand. In the transport services sector, the rerouting of ships away from the Red Sea area was fuelling an increase in freight rates as capacity was effectively reduced and customers brought forward their orders to compensate for longer delivery times (which also increased inventory costs). In the case of travel and tourism services, by contrast, contacts said that consumers were becoming more price-sensitive; this had already resulted in some downward pressure on air fares and was limiting the scope for further increases in hotel prices. Contacts in the retail sector, where competition was strong and customers remained price-sensitive, tended to report stable or slightly decreasing prices, along with pressure on margins. In manufacturing, the vast majority of contacts described broadly stable or modestly increasing prices. In some intermediate goods industries, such as chemicals and packaging, prices had stabilised or were starting to increase, having previously fallen to very low levels. By contrast, motor vehicle prices were subject to increased downward pressure. Contacts in the manufacturing sector reported relatively stable costs for materials and energy, which in most cases also implied fairly stable margins. One factor helping to moderate prices and costs in the manufacturing sector was weak domestic demand in China, which helped to keep a lid on global commodity prices and increased import competition.

Contacts expected wage growth to continue its gradual moderation next year, while still compensating to some extent for past inflation (Chart C). On the basis of a simple average of the quantitative indications provided, contacts assessed wage growth as slowing from 5.4% in 2023 to 4.3% in 2024 and expected a further decline to 3.5% in 2025. While the fall in headline inflation led many to anticipate that wage growth next year would be more in line with historical norms, others said that unions continued to seek high wage increases to compensate for past inflation. In this context, the anticipated wage growth for 2025 also depended on the timing and size of wage increases that had already been agreed.

Chart C

Quantitative assessment of wage growth

(percentages)