The recovery of the lukewarm Eurozone economy is slow | Oxford Economics Skip to content
Research briefing | September 20, 2024
We expect economic activity in the euro area to pick up in 2025, but growth will remain lackluster due to a lack of momentum in the consumer recovery. Monetary policy will become less restrictive, but fiscal policy will continue to weigh on growth. External demand is expected to improve, but the outlook remains vulnerable to risks from the rise of protectionism. GDP growth in 2025 is expected to be 1.3%, slightly below consensus.
What you will learn:
One of the biggest questions shaping the outlook is European consumers’ willingness and ability to spend. Strong consumption as consumer spending remains weak despite a strong recovery in real incomes, and the labor market shows increasing signs of softening, with households potentially choosing to maintain large savings instead. I’m becoming increasingly skeptical that the cycle will start. We believe that the elements are still in place for a cyclical revival of the industrial sector. However, given the continued weakness in Germany’s manufacturing sector and weak orders, the recovery is expected to be longer than previously. Interest rate cuts should boost Europe’s economy, but the impact is likely to be larger in 2026 than in 2025, given the lag in transmission. Businesses will benefit more quickly from the loosening of lending conditions, but the impact on households will vary across countries given differences in mortgage markets and pass-throughs to savings rates. We expect inflation to be below target next year as energy and food disinflation continues. We expect core inflation to moderate and stabilize at around 2%. Service inflation should ease as wage growth declines, but the goods disinflation process is likely nearing an end. Return to resource hub
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