Euro area inflation expected to fall gradually over 2024: ECB bulletin

Overall, Eurosystem staff expect headline inflation to average 5.4 per cent in 2023, 2.7 per cent in 2024, 2.1 per cent in 2025 and 1.9 per cent in 2026.

The Eurosystem consists of ECB and the national central banks of the countries that have adopted the euro.

Compared with the September 2023 ECB staff macroeconomic projections for the euro area, this amounts to a downward revision for 2023 and especially for 2024, the Bulletin noted.

Underlying inflation has eased further, but domestic price pressures remain elevated.

Eurosystem staff expect inflation excluding energy and food to average 5 per cent in 2023, 2.7 per cent in 2024, 2.3 per cent in 2025 and 2.1 per cent in 2026, and economic growth to remain subdued in the near term.

Beyond that, the economy is expected to recover because of rising real incomes as people benefit from falling inflation, growing wages and improving foreign demand. Eurosystem staff, therefore, see growth picking up from an average of 0.6 per cent for 2023 to 0.8 per cent for 2024, and to 1.5 per cent for both 2025 and 2026.

The euro area economy contracted slightly in the third quarter of 2023, mostly owing to a decline in inventories. Tighter financing conditions and subdued foreign demand are likely to continue weighing on economic activity in the near term, an ECB release said.

Prospects are weak for manufacturing, a sector strongly hit by higher interest rates.

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. A weaker world economy or a further slowdown in global trade would also weigh on euro area growth.

Fibre2Fashion News Desk (DS)