The euro-zone will remain close to recession until the second half of this year and the subsequent recovery is likely to be weak. Household real incomes will pick up only slowly and consumers will be cautious amid a softening labour market. Moreover, we expect business investment to stagnate due to soft domestic and foreign demand, and governments will tighten fiscal policy further. With inflation on track to reach its target in the second half of the year, the ECB will cut its deposit rate from 4% to 3% by year-end and to around 2.25% by the middle of 2025. While this should help to support activity next year, the effect of rate cuts will feed through only gradually so the boost to growth will be small.
Elsewhere, the Swiss National Bank will be the first major advanced-economy central bank to cut rates in this cycle as inflation in Switzerland is now very low. The central banks of Sweden and Norway should follow suit as inflation in those economies also comes down to target.