L’Europe struggling with a real struggle for economic growth: this is the latest picture on the health of the economy of the old continent, which offers reflections de Guindos.
The situation in the eurozone is therefore not rosy, and the ECB itself confirms this. The region may have slipped recession last quarter and the outlook remains weak, the vice president of the European Central Bank said on Wednesday, adding that the recent rapid slowdowninflation maybe he’ll take a break now.
Investors and analysts expected a slight decline in the economies of the 20 countries, along with a complicated and difficult path to the goal 2% inflation ECB. They recently bet that interest rate cuts would start in the spring, earlier than most Frankfurt officials had signaled.
Europe: 2023 ends in recession. What did de Guindos say?
Eurozone growth has hovered around zero for most of 2023 and is only one this year slight recoverywhich is helping to cool inflation, which has been overshooting the ECB’s target for years and has forced policymakers to raise interest rates to record highs from 2022.
De Guindos’ latest statements on European economic forecasts fit into this context:
“Weak indicators point to economic contraction in December as well, which they confirm the possibility of a technical recession in the second half of 2023. The latest data suggests that the future remains uncertain and the outlook is tilted to the downside”.
The Vice President of the ECB also stated that economic weakness is widespread, with the construction and manufacturing sectors hit particularly hard and services close to a downturn.
There is also less comforting news on inflation, which has been falling rapidly for most of 2023 but jumped again to 2.9% last month, mainly due to technical factors. However, he fears that he could remain at this level for some time.
“Fast pace disinflation that we observed in 2023 is likely to slow down in 2024 and temporarily stop at the beginning of the year, as it did in December”de Guindos explained.
On central bank policy, he offered no new news, only reiterating the ECB’s guidance that the deposit rate of 4% will be maintained for “long enough duration”will help reduce price growth to the ECB’s 2% target.
At least investors are predicting five rate cuts this year with the first operation planned for March or April, a schedule that several politicians have called too optimistic given the ongoing price pressures.