Report
Can the ECB commit to cutting interest rates in the summer of 2024?
Christine Lagarde has said that the ECB is likely to cut interest rates in the summer of 2024. If inflation in the euro zone falls as the ECB expects (5.4% annual average inflation in 2023, 2.7% in 2024, 2.1% expected in 2025), this ECB rate cut is reasonable. But it has to be pointed out that the fall in inflation expected by the ECB depends on two crucial assumptions made by the central bank : A recovery in productivity (from -0.8% in 2023 to +0.4% in 2024 and +1.1% in 2025); A fall in profit margin s (with unit labour costs rising by 6.1% in 2023, 4.1% in 2024 and 2.6% in 2025, and the GDP deflator rising by 5.6% in 2023, 2.9% in 2024 and 2.5% in 2025). If labour productivity continues to stagnate and even fall, and if profit margins do not fall massively in 2024, inflation will remain close to 4% in 2024, and the ECB will not be able to cut interest rates.
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Natixis
Based across the world’s leading financial centers, Natixis CIB Research offers an integrated view of the markets. The team provides support to inform Natixis clients’ investment and hedging decisions across all asset classes.
Patrick Artus
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