by Prerana Bhat
(Reuters) – The European Central Bank (ECB) is expected to cut interest rates as early as the second quarter of next year, according to a narrow majority of economists polled by Reuters, as the European economy enters a difficult winter this winter. short and superficial recession.
All 90 economists polled by Reuters from Dec. 1-6 said the deposit rate will be kept at its current level of 4 percent during the ECB’s next monetary policy decision on Dec. 14.
Unlike investors, who are betting on around 150 basis points of rate cuts from March 2024, the Reuters survey shows that economists favor “higher for longer” rates.
About 57% of economists, 51 of 90 respondents, expect at least one rate cut before the July meeting. In November, 55% of respondents estimated that rates would remain at their current levels until at least mid-2024.
The median estimate is for a reduction of 25 basis points per quarter from the second quarter of 2024, significantly below market expectations.
“We expect rate cuts for next year, but they will not be as big or as strong as the markets expect,” says Bas van Geffen, macroeconomic strategist at Rabobank. “I continue to view a decline in September as my base case, but it could occur in June or July.”
“It’s really an inflation story… If disinflation is a little faster, the decline could happen at the end of the second quarter, but I think March is too close (so that the decline takes place at that time)”.
If the median expectations of respondents come true, the ECB would start cutting rates before the Federal Reserve, which is expected to keep them at their current level at least until July, according to another Reuters poll. The 75 basis point cut in ECB rates predicted by respondents is lower than the rate cut expected from the Fed.
Price pressures in the Eurozone are currently weaker than in the United States, but easing the ECB’s monetary policy before the Fed’s could weaken the euro and create imported inflation.
Inflation is expected to decline in the coming quarters but remain above the ECB’s 2% target at least until 2025. The economic outlook is also bleak, with the eurozone economy having contracted. by 0.1% last quarter and at risk of contracting again in the fourth quarter, the technical definition of a recession.
This winter recession should be shallow, with the most pessimistic forecast anticipating a decline of 0.3% in GDP, and should not distract the ECB from its mandate to fight inflation.
“The ECB has said in the past that it knows its monetary tightening will weigh on growth. A recession of the magnitude we expect, a decline of 0.1% in GDP in the third and fourth quarters , is not going to shake them in their fight against inflation,” said Melanie Debono, senior economist for Europe at Pantheon Macroeconomics.
The economy is expected to rebound in the first quarter of 2024, growing 0.1%, averaging 0.6% next year and 1.4% in 2025.
“It’s not very impressive, but it’s not zero (…) However, no one will be happy because the economy still faces a lot of headwinds,” added Melanie Debono.
(Prerana Bhat report, Anitta Sunil and Pranoy Krishna polls, Corentin Chappron, edited by Kate Entringer)
Copyright © 2023 Thomson Reuters
I have over 8 years of experience working in the news industry. I have worked as a reporter, editor, and now managing editor at 247 News Agency. I am responsible for the day-to-day operations of the news website and overseeing all of the content that is published. I also write a column for the website, covering mostly market news.
