FRANKFURT (Reuters) - Big euro zone firms are recording stagnating activity levels and see no improvement in the current quarter with risks tilted towards even more negative outcomes, the European Central Bank said on Friday based on a survey of large firms.
The survey adds to an already gloomy picture with a raft of indicators from PMI readings to GDP and lending data all suggesting that the bloc was performing at the weaker end of expectations with recession risks on the rise.
"Contacts continued to describe a situation consistent with broadly stagnating activity overall," the ECB said based on a survey of 73 firms. "Current trends in activity were likely to persist in the third quarter, with the balance of risks a few quarters ahead tilted mildly to the downside."
The ECB raised rates for the ninth successive time on Thursday but left the door open to a pause in September, partly due to weaker growth and tentative signs of a cooldown in underlying inflation.
In potential good news for the ECB, the survey also pointed to a "slight moderation" in wage growth next year, a welcome development since rising labour costs are the top concern for policymakers.
"Contacts expected wage growth to decelerate from around 5.5% this year to 4.7% in 2024," the ECB said. "Around half of contacts expected wage growth in 2024 to be similar to 2023, while four in ten said they thought that wage increases would be lower next year."
Nominal wage growth has been at its highest rate in years in 2023 as workers are seeking to recoup some of their seizable loss in real earnings. This raises the risk that rapid wage increases could then accelerate inflation and force the ECB to raise rates even higher.
Firms also said that inflation of their selling prices slowed further in the second quarter.