After a faster-than-expected fall in inflation in recent months, the European Central Bank (ECB) has revised its forecasts downwards. The average price increase in the euro zone is therefore expected to reach 2.7% in 2024, at instead of the 3.2% expected in its latest September projections. In 2025, the decline would continue at 2.1%, falling to 1.9% in 2026, below the ECB’s average target of 2%. The deceleration trend should therefore continue, even if we can expect a rebound for December, linked to base effects on energy.
However, this normalization did not encourage the Governing Council, meeting Thursday in Frankfurt, to consider changing its monetary policy. Rates have remained unchanged, with the deposit rate remaining fixed at 4% since September. And, unlike the American Federal Reserve (Fed), the day before, the ECB “did not discuss lowering rates at all”, according to its president, Christine Lagarde. The head of the Fed, Jerome Powell, explained Wednesday evening that his monetary committee had discussed a timetable for lowering rates by at least 0.75 points over the year 2024.
“We do not think it is time to let our guard down,” explains Christine Lagarde, estimating that between the rise and fall of key rates, there is time for a “plateau”. This firm stance takes little account of a revision of the growth outlook for the euro zone by the ECB’s own economists. The increase in GDP would be limited to 0.6% this year, then 0.8% in 2024 and 1.5% the following two years. Restrictive monetary policy could contribute to this deterioration of the economy. “Our mandate is not to cause a recession, our mandate is to achieve our objective of 2% for inflation,” defended Christine Lagarde.
The ECB has also announced by the end of 2024 the end of its reinvestments of the massive asset buyback plan (Pepp) of 1,800 billion euros to support the economy launched when the Covid pandemic arose in March 2020.
