The Eurozone economy is facing a potential recession, with a contraction of 0.1% in its Q3 GDP on a sequential basis. This decline marks the first non-pandemic related contraction since 2013. Despite weak consumer spending, positive household income trends and slight increases in household interest costs hint at a possible recovery.
However, the economic landscape remains challenging as declining corporate profit growth and capacity utilization rates signal a further slowdown in investment spending. If contractionary PMI surveys continue to persist or worsen, the Eurozone could be headed for a downturn.
In light of the grim growth outlook, the European Central Bank (ECB) is likely to halt rate hikes and wait for inflation trends to approach its 2% target before initiating a monetary easing cycle. The initial ECB rate cut is forecasted till June 2024, with subsequent cuts potentially lowering the Deposit Rate by a total of 150 basis points by early 2025.
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