In the third quarter of 2023, the area experienced a slight economic contraction, primarily due to declines in inventories. Short-term indicators suggest that weakness in economic activity may persist in the fourth quarter of 2023. However, the ECB anticipates a positive change in trend from early 2024.
ECB: Strengthening Economic Expansion
The ECB foresees that economic expansion will strengthen, driven by an increase in real disposable income. This will be supported by a combination of decreasing inflation, robust wage growth, and employment stability. Export dynamics will align with improvements in foreign demand.
Temporary Inflation Uptick
The Frankfurt-based institution warns that a temporary increase in inflation may occur in the short term, attributable to the upward base effects of energy prices. However, December 2023 projections indicate that, despite this increase, the disinflation process for the core component is expected to continue.
ECB: Commitment to the 2% Target Return
The ECB’s governing council is firmly committed to ensuring a timely return of inflation to the 2 percent target in the medium term. Based on the current assessment, it believes that maintaining restrictive interest rates for a sufficiently long period will substantially contribute to this goal.
Economic Growth and Foreign Demand
In the second bulletin, the ECB emphasizes that the most recent data for the fourth quarter of 2023 indicates likely moderate economic growth, while the labor market may experience a slowdown. However, it is expected that growth will begin to recover in early 2024, provided there are no further shocks.
ECB: Reducing Unfavorable Condition Effects
Reducing the effects of unfavorable financing conditions will contribute to economic recovery. The decline in inflation is seen as a positive factor for an increase in real incomes. Additionally, the ECB predicts that export growth should align with the improvement in foreign demand.
Economic Outlook and Forecasts
Despite the persistent contraction in manufacturing and a slowdown in services in the fourth quarter of 2023, the ECB anticipates that corporate investments will contract but economic expansion will strengthen from early 2024.
Economic projections published in December 2023 indicate that the GDP of the euro area is expected to be 0.6% in 2023, rise to 0.8% in 2024, and reach 1.5% in 2025 and 2026.
In summary, the ECB is confident that, without further shocks, economic growth will gain momentum from this year onwards, leading to a gradual but robust recovery in the coming years. The European Central Bank remains committed to supporting the economy and achieving its inflation targets in the medium term.