ECB Economic Bulletin: Activity to Continue to Recover in 2024 Despite Uncertainty

1 August 2024

By Isabel Teles – FRANKFURT (Econostream) – Economic activity in the euro area should keep on recovering during 2024 following the positive start to the year, according to the Economic Bulletin published Thursday by the European Central Bank.

‘Overall, the euro area economy is expected to continue to recover over the course of this year mainly supported by consumption, driven by the strengthening of real incomes, resulting from lower inflation and higher nominal wages’, the ECB said in the bulletin. ‘Moreover, exports are anticipated to benefit from the improvement in global demand in the coming quarters, although external competitiveness challenges pose a potential downside risk.’

Trade tensions and geopolitical uncertainty would continue to defy the manufacturing sector and investment, the ECB said, but the factors supporting activity would also persist.

‘These include the continued strengthening of real incomes amid lower inflation and a favourable labour market, the increasing momentum of the services sector and the gradually fading drag of monetary policy on demand expected over time’, the bulletin said.

The manufacturing sector was likely to continue to push growth down, as data showed that ‘production in industry remains fragile, as it is more exposed to the still tight monetary policy and global uncertainty’, the bulletin said.

The ECB’s forward-looking wage tracker was in line with expectations that in 2024 wage growth would be higher than in 2023, but would ease in 2025, according to the bulletin.

‘Wage pressures increased in the first quarter of 2024, and while they are expected to decline gradually, this will be from elevated levels’, the bulletin said.

Inflation was expected to remain somewhat stable for the rest of the 2024 and to converge to 2% in 2025, the bulletin said.

‘[Inflation] is then expected to decline towards the target over the second half of next year, owing to weaker growth in labour costs, the effects of the Governing Council’s restrictive monetary policy and the fading impact of the past inflation surge’, the ECB said.