The argument that inflation will fall in the euro zone because of weak growth (in demand) is highly questionable

We often hear the argument that inflation will fall further in 2024 because of sluggish demand. We have serious doubts about the relevance of this argument. Productivity gains remain non-existent in the euro zone. The result is: A persistently low unemployment rate, even with weak growth; Reduced potential growth, since this can only come from the trend rise in the employment rate; as a result, the output gap ( the difference between the level of GDP and the level of potential GDP ) is not being reduced . The low unemployment rate and the lack of productivity gains are leading to a sharp increase in unit labour costs (around 4.5% in 2024). The fact that the output gap remains positive means that corporate profit margins will not fall much; overall, inflation in the euro zone will remain high, if we adjust for the fall in import prices.