The euro area economy has rebounded with strong growth in the first half of 2025, following a period of stagnation. However, recent indicators are raising concerns about the sustainability of this growth momentum, especially in the manufacturing sector, according to analysts at Danske Bank.
ECB Predicted to Implement Two 25bp Rate Cuts in 2024
Despite the positive outlook for growth driven by a robust labor market and increasing real incomes boosting consumer spending in the upcoming year, analysts foresee potential downside risks in the near future.
The disinflationary trend in the euro area continues, with some slowdown observed in the summer due to high services inflation keeping underlying inflation elevated. With gradual declines expected in core inflation and headline inflation projected to stabilize near the 2% target in the latter half of 2025, uncertainties remain in the final path of inflation.
Anticipating the European Central Bank (ECB) to implement two 25bp rate cuts in 2024, followed by three more in 2025, analysts foresee a terminal rate of 2.50% by the end of 2025 to maintain a restrictive monetary policy stance.
Analysis:
The euro area economy has shown resilience with solid growth in the first half of 2025, driven by favorable labor market conditions and increasing consumer spending. However, concerns arise regarding the sustainability of this growth momentum, particularly in the manufacturing sector. The ECB’s predicted rate cuts aim to address inflationary pressures and maintain a restrictive monetary policy stance. Investors should monitor economic indicators closely to assess the impact of these developments on their financial decisions.