EME Macro/Strategy: 2024 – a year of transition and a still tight labour market

The strongest conviction we have for the coming year is that inflation will be lower than most expect, and it will continue to decelerate, notwithstanding a very tight labour market. Consumption has the potential to recover in the Eurozone and in central Europe, but much depends on confidence, which appears, currently, to be stuck at modest levels, because consumers are genuinely constrained in terms of purchasing power. European policymakers have committed to ambitious multi-year transitions: the green and energy above all, with a robust popular backing; the digital, reshoring and defence transitions equally ambitious, but more politically charged. However, advancing with the capex cycle needs a lower cost of borrowing and steady policy leadership: both, to some extent, not true currently and in the near term. As a result, we expect the Eurozone to stagnate in 2024E, while the US economy is likely to carry on cruising at a buoyant expansion pace. This backdrop turns us into dollar bulls for 2024E. Across countries, we see interest rates currently above neutral levels, and we believe that rate cuts are justified and needed, to avert a worsening outlook in 2025E (and yes, the risk of deflation!). This report lays out the big themes we see ahead, but leaves out the country specific details, which we address in separate reports.