There are initial signs the euro area labour market is cooling from the record levels seen in November, as total hours worked are now declining for the first time since late 2020, European Central Bank Vice President Luis de Guindos said Wednesday. The strength of the labour market, particularly employee earnings, are a key metric for ECB policymakers contemplating when the first rate cut of the cycle could come. (MNI INTERVIEW: ECB Could Discuss Cut Timing In January-Centeno)

The slowdown is "mainly driven by the reduction in the average hours worked offsetting the increase from the rise in employment," de Guindos said, although noting unemployment was at a record low 6.4% in November.

The broader slowdown in activity in construction, manufacturing is set to be joined by the service sector which is “set to soften in the coming months”, de Guindos said in an event in Madrid, noting that disinflation will slow down in 2024 and “pause temporarily at the beginning of the year”.