Economy Watch | Europe

Economy Watch: European View (December 2023)

December 21, 2023

Prolonged ebbing levels of consumer and business confidence in November increase the likelihood of the Euro Area contracting mildly again in Q4, falling into a technical recession in H2. On the monetary policy front, the ECB has left its main policy rate (deposit) unchanged at 4 percent. However, subdued economic activity and fast-falling inflation might push the institution to cut rates sooner than in Q3. We now expect this to happen in either April or May.? Moving forward, a resilient labor market, price inflation decelerating at a fast pace, and increasing wages that will boost real incomes are expected to be key growth drivers in 2024. Assuming economic headwinds wane further throughout 2024, annual output growth in the Euro Area is projected to average 1.3 percent in 2025.