Senior European Economist, Chris Hare, discusses Europe's economic prospects, including potential rate cuts, challenges of shifting savings rates, impact of elections on fiscal policies, obstacles to productivity growth, and the influence of AI on economic growth.
European economy may see modest growth with falling inflation boosting real household incomes.
Central bankers likely to consider gradual rate cuts as headline inflation decreases, indicating a shift in interest rate policy.
Deep dives
European Economy Outlook
Survey data suggests that European economy may see a modest pace of growth with falling inflation boosting real household incomes. Central bankers are likely to consider rate cuts as headline inflation decreases, but the pace of cuts is expected to be gradual. Both the European Central Bank and the Bank of England are forecasted to implement rate cuts, albeit slowly, indicating a shift in interest rate policy.
Household Spending and Savings Rates
Household spending is anticipated to grow modestly due to falling inflation and stable labor markets, leading to modest growth in real household incomes. Despite hopes for a shift, savings rates in Europe remain elevated partly due to lingering effects of the COVID-19 crisis and energy price escalations. Sharp interest rate declines or economic confidence improvements could potentially encourage reduced savings, but the cautious approach towards household dissaving primarily relies on stable household incomes.
Chris Hare, Senior European Economist, assesses the region’s prospects with inflation close to target and policymakers on the brink of cutting rates.
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