Goldman Sachs – Euro Economics, 2024

Goldman Sachs predicts that 2024 will be a better year for the Euro area economy for three main reasons. Firstly, they expect growth to pick up as the negative effects from high gas prices, monetary tightening, and weak global industrial activity diminish. This, along with lower inflation and strong wage growth, will support consumer spending and boost disposable income. Secondly, they believe that underlying inflation will normalize in 2024, with core inflation cooling and wage growth decelerating. Although the labor market is expected to remain resilient, wage growth is projected to continue normalizing. Lastly, Goldman Sachs anticipates a more supportive European Central Bank (ECB) in 2024. Progress with underlying inflation is expected to lead to a deposit rate cut in the third quarter of 2024, with a possibility of an earlier cut if growth surprises negatively. The ECB is also expected to gradually lower the deposit rate until reaching 2.5% by the fourth quarter of 2025. Additionally, Goldman Sachs maintains the view that the ECB will taper its PEPP reinvestments in the second quarter. However, they warn that a spike in natural gas prices caused by a cold winter or escalating geopolitical tensions could put renewed upward pressure on headline inflation. Overall, Goldman Sachs predicts area-wide growth of 0.9% in 2024, slightly ahead of consensus, with varying growth rates across countries such as Germany, France, Italy, and Spain.