News and events

10.04.2024

CRUISE CONTROL

Incoming data suggest that the US economy remains on a soft-landing path driven by deteriorating quality of spending.

Indeed, a gradually moderating labor market is setting the stage for a slowdown in income growth, likely causing consumers to be more cautious in their spending behaviors. This is consistent with our view that growth will continue to gently ease in through the forecast horizon, but without taking the economy into recession. 
In the EA, area-wide GDP was revised moderately downward in Q2, on the back of weaker domestic demand. Guidance from soft data does not hint at near-term acceleration into Q3. We left our 2024 baseline unchanged, consistent with activity levels remaining below potential for the remainder of the year. Looking further ahead, we believe that our two main recovery drivers (positive real income + improving credit conditions) remain valid. As a result, we expect growth to improve close to potential in 2025.
In China, we continue to expect growth to stay at potential; weak momentum suggests downside risks to our baseline have increased, though. 
In the US, idiosyncratic factors largely drove the step-up in August core CPI. Though this report was not as encouraging as previous months' reports, we think that the data still support our outlook for gradual disinflation.
In the EA, the August inflation print showed a stronger-than-expected slowdown in core goods and marginally stickier services. Our view on the inflation outlook remains largely in place, as the current relatively firm underlying services inflation dynamics are offset to weaken amid softening activity data and subsiding wage pressures.
In China, structural factors will continue to keep consumer prices in check over the next few quarters as inflation will stay below 1% in 2024.
We stick to our view that the Fed will deliver 25bp of rate cuts at the upcoming September meeting and 25bp at the December meeting, with the risk of a further cut in November. Beyond 2024, we expect the Fed to continue cutting rates gradually by 25bp on a quarterly basis until it reaches the level of neutral rate (3-3.50%).
The ECB cut the deposit rate by 25bp to 3.50%, as widely expected. The tone of the statement and of the press conference was largely unchanged compared to recent meetings and indicate that the ECB remains data-dependent and maintains a gradual approach to rate cuts. We stick to our forecasts of 25bp rate cut at the December meeting followed by 100bp of rate cuts in 2025, one per quarter, with the depo rate ending 2025 at 2.25%, roughly in line with neutral. 
We continue to anticipate that the People’s Bank of China (PBoC) will remain cautious, as the economy is expected to improve very moderately after the summer, raising odds that further fiscal stimulus is on the pipeline. 


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