Headline inflation is projected to not return to target before the first quarter (Q1) of 2025, and core inflation before Q3 2025. Sticky inflation will force the European Central Bank to raise rates for longer than previously expected, probably until the deposit facility rate reaches 3.50 per cent by the summer, unless the market turmoil undermines the current outlook for growth and inflation, according to S&P Global's report titled Economic Outlook Eurozone Q2 2023.
The near-term outlook for the eurozone economy appears complicated. A restrictive monetary policy will transmit to domestic demand, while interest rates should turn positive in real terms in 2024. At the same time, production and the labour market might lose steam.
Consumer spending is projected to get relief from government measures, accelerating wages, and disinflation, while external demand will benefit from China’s reopening. Public investment will help cushion the cyclical slowdown, adding half a point of GDP a year for the coming three years, and could enhance long-term GDP.
ALCHEMPro News Desk (NB)
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