The European Central Bank (ECB) considers a recession in the euro area to be unlikely despite the economic weakness in Germany. This emerges from the minutes of the September interest rate meeting published on Thursday.
Accordingly, the monetary authorities want to gradually loosen the reins as long as the data situation allows it. Recently, as reported, there have been increasing signals that the ECB could cut the key interest rate again at its meeting next week. The German Bundesbank boss Joachim Nagel can also imagine easing. Robert Holzmann, head of the Austrian National Bank, warned this week against further premature interest rate cuts: “Inflation is on the right track. But it has not been defeated.”
Inflation in the euro area was 1.8 percent in September, below the target of two percent for the first time since mid-2021. The ECB sees this as ideal for the economy in the euro area in the medium term.
Problem child Germany
The monetary authorities are assuming that there will be a temporary flare-up in inflation towards the end of the year. However, the central bank’s goal of an inflation rate of two percent should be achieved in the second half of 2025. With regard to the economy, the monetary authorities see the different developments in the individual member states of the eurozone as a challenge: some countries suffered more than others from the slowdown in industrial activity. “In particular, the weak growth in the largest economy in the euro area slowed down growth in the euro area,” it says in the minutes with a view to Germany: The German government is now expecting the second year of recession in a row for 2024.
While some of the weakness is likely cyclical, the German economy faces significant structural challenges: “In contrast, many other euro area countries recorded robust growth, including strong contributions from domestic demand.”
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