We expect the euro-zone economy to struggle over the next 18 months, and a mild recession in the coming quarters looks more likely than not. Lower energy prices and improved global supply chain conditions should keep headline inflation on a downward trend, despite the recent uptick in oil prices. And we think the core rate will fall from nearly 5% currently to around 3% by mid-2024. But the labour market will remain tight, keeping wage growth fairly high and meaning that the ECB won’t feel confident about hitting its 2% inflation target on a sustained basis until later in 2024. We have pencilled in the first rate cut for September, later than most expect, and forecast the deposit rate to end 2024 at 3.25%.
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