Euro Area: Progressing despite near-term hurdles – Danske Bank

The euro area economy experienced a solid first half of the year, achieving decent growth after a year of stagnation. Recent indicators, however, have cast doubts on the sustainability of this growth momentum, particularly in the manufacturing sector, Danske Bank’s macro analysts note.

ECB to deliver two more cuts of 25bp in 2024

“We predict growth will continue, driven by a strong labour market and rising real incomes that bolster consumer spending in the coming year, but we see downside risks to the near-term outlook.”

“The disinflationary process in the euro area is still on track, albeit some slowdown has been observed over the summer owing to persistent high services inflation that keeps underlying inflation elevated. Combined with normalizing goods inflation, we expect only a gradual decline in core inflation. We forecast that headline inflation will stabilize close to the 2% target in the second half of 2025, but the final path is set to be bumpy.”

“We expect the ECB to deliver two more cuts of 25bp in 2024, followed by three in 2025. This means a terminal rate of 2.50% at year-end 2025, due to the need to keep a restrictive monetary policy stance.”