Tighter monetary policy has had a big impact on financial conditions in the euro-zone, but we think its effect on activity is still in its early stages. Even if the region falls into a mild recession, it will be some time before policymakers are confident that core inflation will fall to 2% on a sustained basis. As a result, we don’t expect to see the ECB cut interest rates until the second half of 2024 at the earliest.
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