Goldman Sachs economists now expect the ECB to cut interest rates for the first time in the second quarter of next year.
Thursday's data showed a marked slowdown in inflation in the eurozone. Hours later, Goldman Sachs changed its course in a report, arguing that the ECB would start cutting interest rates in the second quarter of next year. Economists, including Jari Stehn, had expected the ECB to cut interest rates in the third quarter.
The data showed that inflation in the eurozone moved further towards the 2% target set by policymakers, with the preliminary CPI annual rate of 24%, the lowest since July 2021; The monthly rate was recorded at -05%, the largest decline since January 2020. Headline inflation has increased from October 10, 2022The peak of 6% cooled down significantlyInflation in Germany, the largest economies, and France has fallen to 23% and 38%。The analyst writes:
"While there are significant hurdles to rate cuts ahead of Q2, our baseline expectations are clearly more inclined for a sooner rate cut if inflation continues to slow faster than expected, or if economic growth fails to improve next year. ”This change makes Goldman Sachs' view more in line with the expectations of market investors. While many ECBs** insist that interest rates should remain high for some time, investors have fully priced in an April rate cut. The ECB** has repeatedly emphasizedIt's too early to declare that the 20 eurozone members have beaten prices** and they are still monitoring the potential pressures on inflation from wages** and energy markets.
In addition to the inflation data, Goldman Sachs economists are also expected to cut interest rates ahead of scheduleGermany's fiscal crisis is likely to weigh on the eurozone economy even further. Earlier, the German Supreme Court ruled that the German Confederation** had to freeze all its budgets by using the remaining more than 60 billion euros from the pandemic for the climate transition unconstitutional. German Chancellor Olaf Scholz and his ruling coalition must decide which projects to cut spending on next yearIt could lead to a further slowdown in the country's economy.
Other factors and indicators are also cause for concern. For example, weak demand in the services sector and the PMI of new orders are at their lowest level in the last 11 years, suggesting an "accelerated" slowdown in business activity in the eurozone. Manufacturing activity showed the sharpest decline in new orders since 1997. Another indicator of the health of the economy is the lending activity of banks. If the number of loans issued increases, it will definitely mean that people are confident in the economic outlook and thus participate in more business activities. The current decline in the number of loans in the eurozone suggests that this is not the case.
Although the unemployment rate in the eurozone remained at 6 in October5% at an all-time low, but some analysts saidEven if the eurozone may be able to avoid a full-blown recession, it will still face some "mild volatility".