GDP growth picked up in Q3 but timelier data suggest that it has slowed in Q4. We expect growth to remain sluggish next year regardless of whether President Trump raises tariffs on imports from Europe. We also think that inflation will be below 2% in 2025. As a result, we forecast the ECB to cut interest rates faster and further than investors expect, taking the deposit rate down to 1.5% by mid-2025. Meanwhile, mounting fiscal pressures in France and Italy will cause their bond spreads to widen.
Elsewhere, we think that the Riksbank will reduce its policy rate from 2.75% currently to 2.25% early next year, and that the SNB will cut three more times in this cycle taking its policy rate to 0.25% in March. Norges Bank will probably hold fire until January.
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