(Reuters) – The European Central Bank (ECB) is expected to keep interest rates at current levels well into next year, with the majority of economists polled by Reuters saying a cut would not come before July , despite forecasts of a recession in the euro zone.
Last month, the ECB left its deposit rate unchanged at 4% after ten consecutive hikes, and all 72 economists polled by Reuters from November 8 to 13 agreed that there would be no further rate hikes in the current cycle.
While financial markets currently expect a rate cut in April, the latest Reuters poll suggests this is unlikely, especially after ECB President Christine Lagarde said last month that “even having a discussion of a reduction is totally, totally premature.”
About 55% of economists, or 40 out of 72, expect rates to remain at their current level until the middle of next year. The remaining 45% expect a cut before the ECB Governing Council meeting in July.
The results are close to those of a survey carried out last month, in which 58% of economists questioned did not expect a decline before the July meeting.
“It doesn’t take much for the eurozone to slip into recession,” writes Peter Vanden Houte, chief eurozone economist at ING, noting that the ECB has acknowledged that growth has been weaker than it has been. had planned it.
“But this does not mean that the ECB will be in a hurry to cut rates (…) We do not expect a rate cut before the summer of 2024.”
An earlier-than-expected rate cut would likely require a recession deep enough to justify easing monetary conditions even if inflation remains above the ECB’s 2% target.
More than 40% of economists who answered the question, or 15 out of 35, expect a further contraction this quarter after preliminary figures suggested the bloc’s economy contracted by 0.1% in the third quarter. The contraction would be limited, with the weakest forecast betting on a decline of 0.3% in GDP in the fourth quarter.
A strong majority of economists, 24 out of 29 who responded, believe that the recession in the euro zone would be short and shallow. Three consider it long and shallow, one long and deep and another short and deep.
For now, the US Federal Reserve is expected to ease policy a little earlier than the ECB, by the end of the second quarter, although most economists say the biggest risk to their forecasts is that it act later.
The euro could weaken and create imported inflation if the ECB, which began raising rates several months after the Fed, eases rates before its American counterpart.
In the meantime, price pressures are expected to remain stable. Headline inflation, whose target is set at 2% for the ECB, fell to 2.9% last month, its lowest level in more than two years, after peaking at 10.6% in October 2022. It is expected to remain approximately the same level as today in the first half of next year and average 2.7% in 2024.
Core inflation is expected to average 5.0% this year and 2.6% next year.
The unemployment rate is expected to increase only slightly to 6.7%, from the current 6.5%, by the end of 2024, according to the poll.
(Reporting Prerana Bhat; investigation Purujit Arun, Rahul Trivedi and Sarupya Ganguly, French version Corentin Chappron, editing by Kate Entringer)
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