ECB economic bulletin, what news on inflation and GDP in Europe?

The economic bulletin of the ECB was published and highlighted predictions for 2024 inflation AND GDP growth for eurozone countries.

The single currency region and the whole of Europe in general ended 2023 with increasingly confirmed economic weakness and weakness in the main manufacturing sectors, while inflation showed signs of cooling, albeit with hesitation at the end of the year, foreshadowing a likely increase also in the first months of 2024.

The ECB also emphasized that the current restrictive monetary policy with record rate hikes is having an effect “with power to the economy”. While this is a good sign for the CPI, it puts downward pressure on demand and growth.

In this context, the risks to GDP are falling and the risks to inflation are rising, especially if we consider the factors of uncertainty and geopolitical tensions at the global level. The ECB Economic Bulletin therefore maintains a cautiously optimistic tone for 2024.

Can Europe grow in 2024: what did the ECB’s GDP bulletin reveal?

2023 will end with weakness for economic growth. As stated in the bulletin:

“The Eurozone economy has suffered a slight contraction in the third quarter of 2023, primarily due to inventory declines. Tighter financing conditions and subdued foreign demand are likely to continue to weigh on economic activity in the near term.

The view is particularly poordesign and manufacture, the two sectors most affected by interest rate hikes. Services activity is also expected to slow in the coming months.”

As projected last December, 2023 is estimated to end with no momentum, with a slowdown expected in the fourth quarter. In this weak growth outlook, the effects of monetary policy tightening – higher interest rates – will play a major role.

However, the year that has just begun promises a more optimistic scenario. The ECB bulletin actually highlights this “PUSH growth will strengthen from the beginning of 2024 further, as real disposable income rises – supported by falling inflation, strong wage growth and resilient employment – ​​and export growth catches up with improving foreign demand.”.

Overall, a technical recession may hit the Eurozone in 2023 with signs of improvement in 2024.

Where does the ECB think inflation will go in 2024?

If the months of October and November were decisive in order to be able to finally talk about slowing inflationthe same cannot be said for December 2023 when “Inflation likely to increase due to rising benchmark in energy price”.

With this assumption, the ECB’s economic bulletin highlights that prices will fall in 2024 “slower due to a further upward benchmark effect and the phasing out of past fiscal measures aimed at limiting the effects of the energy shock.”

Inflation threatens the economy (again).  There is only one reason

Also, pay attention to the risks of rising inflation due to two factors, such as the worsening of geopolitical tensions and the occurrence of extreme weather events. Energy and food prices would be the first to jump again in both cases.

The economic bulletin also draws attention to this “Inflation could surprise to the downside if monetary policy curbs demand more than expected”or under the – worrying – circumstances of global economic weakness driven by wars and increasingly bitter tensions.

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