Revising our ECB forecast, German fiscal space

In light of this week’s data releases we are bringing forward our forecast for the first ECB rate cut to June next year and now think the deposit rate will fall from 4% currently to 3% by the end of 2024. Meanwhile, we think the German government has enough fiscal space to increase government spending or cut taxes more than 1% of GDP and still bring its debt ratio down to the 60% Maastricht target. Next week we expect to hear from more ECB policymakers, most of whom are likely to push back against the idea of early rate cuts.