ECB Economic Bulletin: Euro Area Growth Expected to Strengthen From 1Q

8 February 2024

By Isabel Teles – FRANKFURT (Econostream) – After stagnating in 2023, the euro area economy is expected to start growing again from the first quarter of this year, according to the first Economic Bulletin of 2024, published Thursday by the European Central Bank.

‘Incoming data show signs of a modest strengthening of growth in the first quarter of 2024. The labour market remains resilient, although more recent indicators suggest signs of cooling following the protracted period of weak economic activity. The euro area economy is expected to start gradually improving over the course of this year’, the bulletin said.

However, incoming data still indicated weakness in the near term, according to the bulletin.

‘The risks to economic growth remain tilted to the downside. Growth could be lower if the effects of monetary policy turn out stronger than expected’, the ECB said.

The disinflation process was expected to continue throughout 2024, but geopolitical tensions, stronger-than-expected wage increases and resilient profit margins remained upside risks, the bulletin said.

On the other hand, the bulletin cited a stronger-than-expected monetary policy effect on demand, a worse global economic environment and energy prices evolving in line with downward expectations as factors that could impact inflation on the downside.

‘Inflation is expected to ease further over the course of 2024 as the effects of past energy shocks, supply bottlenecks and the post-pandemic reopening of the economy fade, and tighter monetary policy continues to weigh on demand’, the ECB said.

The bulletin noted that ‘[o]verall, the priced probability of a first rate cut in March and April 2024 edged down.’

‘At the end of the review period markets had fully priced in a rate cut of 25bp for June and cumulative rate cuts of 133bp by the end of 2024’, the bulletin said.

The level and duration of restriction would continue to be determined by data, the bulletin noted.

‘In any case, the Governing Council stands ready to adjust all of its instruments within its mandate to ensure that inflation returns to its medium-term target and to preserve the smooth functioning of monetary policy transmission’, the ECB said.