We expect the mild recession in the euro-zone to drag on for the rest of the year. The drop-back in energy prices will provide some relief for households and companies but will be partly offset by governments withdrawing policy support. Households will cut their spending in light of stagnant real incomes and rising borrowing costs while companies will scale back their investment plans. However, the labour market looks set to remain tight, keeping wage and underlying price pressures strong. While headline inflation should fall to the ECB’s 2% target by the end of 2024, core and especially services inflation will remain higher for longer. The ECB will raise its deposit rate to 3.75% in July and perhaps to 4.0% in September and leave it there until late next year. Against a similar economic backdrop, central banks in Norway and Sweden will also raise rates further in the coming months, and the Swiss National Bank will also do so though with rates at much lower levels. However, we think policymakers will start cutting interest rates sooner in all of these countries.
Become a client to read more
This is premium content that requires an active Capital Economics subscription to view.
Already have an account?
You may already have access to this premium content as part of a paid subscription.
Sign in to read the content in full or get details of how you can access it
Register for free
Sign up for a free account to gain:
- Unlock additional content
- Register for Capital Economics events
- Receive email updates and economist-curated newsletters
- Request a free trial of our services