This time, the European Central Bank (ECB) is clearly on a roll. For the third time in four meetings, he announced, on Thursday, October 17, from Brdo Castle (Slovenia), where his meeting was held, a reduction in his interest rates, moving his official rate from 3.5% to 3.25%. At the beginning of June it was still 4%. And if Christine Lagarde, its president, refuses to commit to the future, everything indicates that the trend will continue.
“Our base case is that the ECB will cut rates again in December and then again at each Governing Council meeting until June 2025.”predicts Frederik Ducrozet, director of economic research at Pictet, an asset management company. This would reduce the key rate to 2%, a cut by half in one year. If this is confirmed, European monetary policy will have completed its “restrictive” phase, during which it voluntarily slowed growth in the name of fighting inflation.
This new rate cut this Thursday is a reaction to the unpleasant growth surprises earlier this fall. Contrary to the optimistic forecasts that were made even before the summer, all indicators are in decline. Germany will probably be in recession this year. Household consumption is not increasing, despite a rebound in real (inflation-adjusted) wages. Business investment is similarly sluggish and household investment is declining slightly.
Trompe l’oeil fall
Certainly, M.me Lagarde continues to bet on a “soft landing”That is, controlling inflation without bankrupting the economy. “The euro zone is not heading towards recession”he assures. but recent “bearish surprises” Economic indicators, to use the words of the ECB, point to a mediocre economy.
Regarding inflation, which is the official objective of the ECB, it has ” surprised “ downwards, as M himself admitsme Lagarde. “I don’t think we expected inflation to be 1.7%. [pour la zone euro] in September »admits. This figure was lower than expected. This is the first time since June 2021 that inflation has fallen below 2%, which is the institution’s goal.
Admittedly, this drop is slightly misleading. This follows a sharp drop in energy prices compared to September 2023, and this effect will fade in the coming months. Inflation should therefore recover slightly by the end of 2024. But all signs point in the right direction: so-called “core” inflation (excluding food, energy, tobacco and alcohol), which is less volatile, is of 2.7%. also in decline; As for prices in the service sector, which depends largely on salaries, they fell below 4% to 3.9%. “Have we twisted inflation’s neck? Not yet. But are we close to getting there? Yeah “concludes M.me Lagarde. A view widely shared by economists: “The inflation battle seems won, although some tension persists over internal inflation”estimates Michel Martinez, euro zone economist at Société Générale.
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