- This week’s January inflation data will be key for the ECB’s decisions and communication in H1 2024.
- We look for a downside surprise in the EZ, but the January report is a wildcard; anything can happen.
- EZ GDP likely fell in Q4—confirming a recession— worse than the ECB predicted in December.
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: Rebound in inflation and higher taxes hit confidence.
Melanie Debono (Senior Eurozone Economist)Eurozone
- Money data, adjusted for savings, suggest a Q1 recovery in EZ GDP is still on the cards...
- ...Growth in bank lending, however, suggests the recovery will be tepid, at best.
- Consumer confidence figures imply the same, as German sentiment is hurt by higher taxes.
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: Pointing to downside risks to our rebound call.
Melanie Debono (Senior Eurozone Economist)Eurozone
- The ECB left all its policy settings unchanged yesterday, as everyone expected it to.
- President Lagarde stuck to the line that a spring rate cut is unlikely but didn’t explicitly push back on it...
- ...Data next week will, we think, give the Bank the confidence it needs to cut rates first in March.
Claus Vistesen (Chief Eurozone Economist)Eurozone
THE ECB IS DONE HIKING; WHEN WILL IT CUT?
- ...WE THINK EASING WILL BEGIN IN MARCH
Claus Vistesen (Chief Eurozone Economist)Eurozone
- ECB hawks will pounce on signs from the PMI of continued upward price pressures in services...
- ...But the PMIs continue to suggest the EZ economy remains in a rut & manufacturing costs are sliding.
- January’s inflation read will be more decisive for the timing of the ECB’s first rate cut; March is our call.
Melanie Debono (Senior Eurozone Economist)Eurozone
- Lending standards were tightened again in Q4, albeit less than in Q3; banks blamed risk perception.
- Demand for loans again fell across the board, partly reflecting the continued rise in interest rates.
- ECB doves can use the BLS to argue that financial conditions can ease, but will they?
Melanie Debono (Senior Eurozone Economist)Eurozone
- This week the ECB will continue to push back against expectations of a rate cut in the first half of 2024...
- ...But the central bank is now happy to underwrite the consensus position of a rate cut by summer.
- We still see the ECB cutting by March, as January and February HICP surprise to the downside.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- A raft of collective wage agreements will be renewed this year, and the ECB is watching closely.
- If the ECB waits until it has a full overview, rate cuts will be delayed, even beyond June.
- We still see a rate cut in March as inflation comes down much faster than the central bank expects.
Claus Vistesen (Chief Eurozone Economist)Eurozone
