Fiscal policy adds to headwinds

Euro-zone governments have been tightening fiscal policy this year and will continue doing so in 2024 – all the more so if Germany chooses to make some additional expenditure cuts in response to the constitutional court ruling regarding its off-budget funds. This austerity-lite supports our view that the economy will fall into recession in Q4 and do little more than flatline in the first half of 2024. Meanwhile, we expect a further fall in the core inflation rate in the euro-zone next week.