Complete one's misery! The eurozone economy looks set to fall into a technical recession, while inflation is likely to pick up again. The ECB is getting tougher.
ECB Vice President De Guindos warned that the eurozone economy looks set to fall into a downturn again in the fourth quarter, while the recent rebound in inflation is expected to continue in the coming months.
De Guindos said in a speech in Madrid on WednesdayThe pace of rapid inflation decline last year is likely to "slow in 2024 and stall at the start of the year".。The remarks were aimed at:Dampen market expectations of an interest rate cut by the ECB in March。Earlier, the Eurozone Consumer ** Index (CPI) increased from 24% rebounded to 29%。
De Jindos added that soft indicators suggest:The region's economy will contract in December. He said it would confirm "the possibility of a technical recession in the second half of 2023 and a weaker near-term outlook."
His comments underscored the awkward position facing the ECB at its meeting on January 25, where policymakers will struggle to decide when to start cutting interest rates amid a weak economic outlook and inflation still above its 2% target. While many economists** the eurozone will meet its inflation target this year, the central bank will not be until the third quarter of 2025.
ECB Executive Board member Schnabel highlighted the ECB's cautious view of the pace of inflation decline, writing during a Q&A session on social ***x: ".It's too early to talk about a rate cut.
Schnabel said that in order to ensure that inflation can return to the ECB's target in a sustainable manner, "more data is needed to confirm progress in the fight against inflation," adding: "Geopolitical tensions are one of the upside risks to inflation, as they could push up energy** or freight costs." That's why we need to be vigilant. ”
DegindosThere is no indication of what a potential recession means for monetary policyand insisted on the ECB's usual approach, saying that "future decision-making will continue to follow a data-based approach to determine the appropriate level and duration of restrictions".
Carsten Brzeski, an economist at ING, said the ECB's central bank vice president's comments about rising inflation reduced the chances of the ECB cutting interest rates in the first quarter. "If you tie those points together, that's another reason to oppose the expectation of a rate cut in March," he said.
Money markets have lowered their expectations for the ECB's rate cut. Traders are now inclined to expect the central bank to make five 25bp rate cuts by the end of the year, instead of 6 times, for the first time since December 15 last year. Traders also cut the ECB's rate cut forecast for the first half of 2024 by 2 basis points, expecting a rate cut of 8 basis points by March and 27 basis points by April.
De Guindos said he expects inflation in the eurozone to follow a similar path to Spain, which fell below 2% in June 2023 but rose above 3% in the last four months of last year with the phasing out of energy subsidies.
"The positive energy base effect will start to kick in, and energy-related compensation measures will expire, leading to a temporary uptick in inflation," he said. ”
The eurozone economy stagnated for most of last year, shrinking 01%。
A modest recovery in the region's economy is widely expected this year due to falling inflation and wages**. Last month, the European Central Bank** said that the eurozone economy will grow from 01% accelerated to 04%。
But De Kindos was skeptical, calling economic growth "disappointing" and that "the slowdown in economic activity appears to be broad-based, with the construction and manufacturing sectors particularly affected". "The services sector will also be weak in the coming months due to weak activity in other sectors of the economy," he added. ”
Much of his gloomy outlook stems from a closely watched Eurozone survey of purchasing managers, which showed a continued decline in business activity at the end of last year. Last week, the final composite PMI for the Eurozone for December was revised upwards to 47 from 476, but it is still well below the dividing line of 50.
De Guindos said the eurozone labor market "continues to remain particularly resilient to the current economic slowdown" after the eurozone unemployment rate fell back to 6 in NovemberA record low of 4%.