(Reuters) – Euro zone inflation could fall faster than expected this year as economic growth will remain anaemic, two key surveys published by the European Central Bank showed on Friday, likely bolstering bets for interest rate cuts starting this spring.
Inflation in 2024 could average 2.4%, less than the 2.7% seen three months ago and the 2.7% projected by ECB staff, the ECB’s Survey of Professional Forecasters, a key input in the bank’s policy deliberations, showed.
In 2025, inflation could average 2.0%, in line with the ECB’s target, versus 2.1% seen earlier,
This downgrade was consistent with the findings of a separate survey of the ECB’s contacts with corporations.
“Contacts reported that growth in selling prices remained moderate in the fourth quarter of 2023, with some further easing expected in the short term,” the ECB said.
The ECB kept interest rates unchanged on Thursday and insisted that even a discussion about rate cuts was premature because prices pressures have yet to be fully extinguished.
But many economists think the ECB is overly pessimistic about inflation as weak growth, moderating commodity prices, lower than feared wage growth and the impact of past rate hikes are all pointing to price growth falling back to the ECB’s 2% target sooner than its 2025 projection.
Indeed, the forecasters’ survey sees anaemic economic growth this year and GDP is seen expanding by 0.6% in 2024, less than the 0.9% seen in the previous forecast. In 2025, they see growth at 1.3%, down from 1.5%.
This increasingly pessimistic outlook is echoed by the corporate survey.
“Contacts painted a largely unchanged picture of activity stagnating or contracting slightly in the fourth quarter of 2023, with little or no pick-up expected in the first quarter of 2024,” the ECB said.
Firms said they expected the jobs market to soften given prolonged uncertainty and an increasing need to contain costs.
Over the longer term, defined as 2028, the forecasters’ survey sees price growth at 2.0%, down from a previous forecast at 2.1%.
(Reporting by Balazs Koranyi; Editing by Toby Chopra)
Comments