The euro-zone appears to have lost some momentum and is likely to remain sluggish in the coming quarters. The core economies are the weakest, led by Germany which is probably in another technical recession and which faces major structural challenges. In contrast, Spain will outperform, thanks in part to rapid immigration, and prospects for Portugal and Greece are fairly bright. Meanwhile, headline inflation looks set to fall well below 2% next year but services inflation will come down more gradually amid a tight labour market. Against this backdrop, we think the ECB will reduce its key policy rate by 25bp every three months until it has fallen to 2.5% in the second half of next year.
Elsewhere, the Riksbank will respond to economic weakness in Sweden by cutting interest rates by a 100bp to 2.5%; Norges Bank will cut rates faster than its own policymakers forecast; and the SNB will cut its key rate by a further 50bp to counter upward pressure on the franc.
Note: We’ll be discussing key takeaways from this report, including the scope of Germany’s downturn, in a Drop-In on Tuesday, 24th September. Register here for the 20-minute online briefing.
Become a client to read more
This is premium content that requires an active Capital Economics subscription to view.
Already have an account?
You may already have access to this premium content as part of a paid subscription.
Sign in to read the content in full or get details of how you can access it
Register for free
Sign up for a free account to:
- Unlock additional content
- Register for Capital Economics events
- Receive email updates and economist-curated newsletters
- Request a free trial of our services