2 important data arrived from Europe On the economic level, he sent a message to the European Central Bank: Interest rate increases also stalled in December?
While the October Euro Tower meeting concluded with the decision to leave the fiscal cost unchanged at 4.50%, we are already wondering what could happen at the end of 2023 and during 2024, when the wait will be all for one person. Reducing the interest rate.
Bearing in mind that Lagarde and the members have always stressed, even last October 26, that every choice of action will depend on data, specifically the latest figures on… GDP and inflation in the euro area They leave their mark.
Although the results are preliminary, they highlight that the G20 single currency countries are witnessing a decline GDP contraction and price index decline. This is precisely what the European Central Bank will need to stop aggressive monetary policy and announce the success of the strategy adopted so far. Will it really be like this? How to read data 2 in Europe and what to expect?
Europe: GDP and inflation slowdown, what does it mean?
Inflation in the euro zone fell to its lowest levels in two years as the bloc’s economy contracted under the pressure of an unprecedented rise in interest rates.
in detail, The annual consumer price index fell to 2.9%. in October, the lowest level in more than two years, thanks to falling fuel prices and rapid interest rate increases by the European Central Bank. The sub-3% level is a good result compared to the peak of over 10% in October 2022 and puts the inflation figure just a short distance from the ECB’s 2% target.
Inflation fell from 4.3% annually in September, with fuel prices falling by 11.1% and “severe” food inflation slowing to 7.5%.
However, this encouraging news was offset by official data on economic output in the 20 countries that use the euro decreased by 0.1% In the July to September quarter. Growth “disappeared” due to a contraction in production after months of near-zero stagnation.
The euro zone’s GDP figure stands in stark contrast to its counterpart in the United States, which last week recorded exceptional growth between July and September, while managing to reduce inflation.
Europe’s greatest weakness It is also its largest economy GermanyWhich revealed on Monday that production fell by 0.1% in the third quarter. GDP has barely increased for a year and a year Recession is now a real possibility.
However, Italy managed to avoid a similar fate, while France and Spain recorded growth in the three months to September.
So far, the euro zone has avoided any quarterly declines, despite rising prices fueled by the Russian war in Ukraine. European Central Bank President Christine Lagarde, who oversaw the interest rate halt last week, sees this as the case at the moment. Modest production.
The governor said in a news conference on October 26 that the economy will likely remain weak for the rest of the year. “But with lower inflation, a further recovery in real household income and a recovery in demand for euro area exports, the economy is expected to strengthen in the coming years.”.
Will it really be like this? What is the importance of these expectations for interest rate policy? sLow prices and weak demand In an economy that is growing only slightly, these are the conditions necessary to stop the increase in interest rates, indicating that the options of 10 consecutive increases have had the upper hand so far.
To avoid a recession that would pose a real risk to the eurozone, the European Central Bank could leave interest rates unchanged in December, in the face of falling prices.
Is the European Central Bank really prepared to stop – or cut – interest rates?
Lagarde stressed again that talking about it Cutting interest rates to revive activity is prematureOfficials’ task on inflation remains unfinished. Markets are currently betting that the European Central Bank’s deposit rate will remain at 4% until at least April.
According to economists Jamie Rasch and Maeva Cousin, the eurozone is contracting slightly under the weight of rising interest rates, slowing external demand and the lingering effects of the energy price shock. But the economy has not collapsed yet.
“At the same time, the latest inflation data shows a marked decline in the nominal rate and an overall easing of cost pressures. This combination is likely to be more or less what the ECB wants to see. “The chances of interest rates rising again this year are now very low.”they added.
This data leaves the European Central Bank in a state of extreme anticipation, said Dirk Schumacher, economist at Natixis. However, the last mile may be the most difficult for the central bank “now It is weaker demand that reduces inflation “This is a slow process.” added the expert.
So there is no doubt that these two data sets indicate that the E.C.B He is almost certainly done raising interest rates – At all-time highs – at least for 2023. We will now begin to see the impact of an unprecedented series of 10 consecutive increases before further moves are made. But surprises are coming, and ruling out new increases is still fraught with risks.
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