Economists' cautious ECB forecast

According to a survey conducted by Bloomberg, economists expect the European Central Bank (ECB) to cut four interest rates in 2024. This indicated a more cautious approach than market actors who were expecting six interest rate cuts. According to a survey of economists, the European Central Bank (ECB) is expected to cut interest rates four times this year as inflation declined faster than previously expected. The cuts, each of 25 basis points, are expected to start in June with further cuts in September, October and December to bring the deposit rate to 3 percent. Although economists’ expectations of cuts have increased, they appear to have a more cautious approach than market actors who were predicting six interest rate cuts. ECB officials are focusing particularly on wage developments in the first half of 2024 to confirm that rising labor costs will not prevent inflation from slowing towards the 2 percent target. Economists, on the other hand, expect inflation to decline more rapidly. The expectation is for inflation to reach 2.3 percent in 2024. That would be a downward revision of 0.3 percentage points from the December survey. Economists see inflation still on track, with the country accelerating from its target level in the fourth quarter to reach an average of 2.1% in 2025. Such a scenario is seen as consistent with warnings from ECB officials who have said last year’s dramatic slowdown will not continue in 2024. The core inflation rate, which excludes components such as energy and food, is set to be lower this year but slightly higher in 2025, above the ECB’s target of 2.2%. The survey predicts a recession in the second half of 2023 will be followed by a gradual recovery that could gather pace later this year. Growth expectations were kept unchanged for 2024, while they were raised by 0.1 percentage points for 2025.