Euro area – Progressing despite near-term hurdles
|-
The euro area economy experienced a solid first half of the year, achieving decent growth after a year of stagnation. Recent indicators, however, have cast doubts on the sustainability of this growth momentum, particularly in the manufacturing sector.
-
We predict growth will continue, driven by a strong labour market and rising real incomes that bolster consumer spending in the coming year, but we see downside risks to the near-term outlook.
-
The disinflationary process in the euro area is still on track, albeit some slowdown has been observed over the summer owing to persistent high services inflation that keeps underlying inflation elevated. Combined with normalizing goods inflation, we expect only a gradual decline in core inflation. We forecast that headline inflation will stabilize close to the 2% target in the second half of 2025, but the final path is set to be bumpy.
-
We expect the ECB to deliver two more cuts of 25bp in 2024, followed by three in 2025. This means a terminal rate of 2.50% at year-end 2025, due to the need to keep a restrictive monetary policy stance.
The euro area economy experienced a solid first half of the year, achieving decent growth after a year of stagnation. This positive trend was primarily supported by the service sector and the economies in Southern Europe, while the manufacturing sector and Germany faced challenges. Recent indicators, however, have cast doubts on the sustainability of this growth momentum, particularly due to weakness in the manufacturing sector. Global industrial activity has slowed down, and foreign demand looks frailer. As a result, we estimate that the nearterm growth prospects have weakened slightly since our last forecast in June and see downside risks to the projections for 2024. Nonetheless, we still predict positive, but below trend, growth rates in GDP this year and next year, driven by private consumption and service providers. The labour market has moderated lately but overall remains solid which together with rising real incomes should bolster consumer spending. We see risks to the growth outlook for 2025 as balanced since we expect global central banks to gradually dial back the level of monetary policy restrictiveness and as consumption could increase more than expected thanks to current high savings.
Download The Full Research Euro Area
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.