ECB President Christine Lagarde made it clear that rate cuts aren’t on the table, in stark contrast to the Fed, which is intensely focused on the risks to growth associated with maintaining higher rates for an extended period. This divergence is particularly notable given the Euro zone’s recent weaker economic performance and more rapid disinflation compared to the United States.

Monetary policy has impacted the Euro zone’s economy faster than expected. Tighter financing conditions are dampening demand and we expect this trend will continue. Moreover, bank’s credit conditions have tightened significantly. Lending to the area’s companies fell by 0.3% year-on-year in October 2023, marking the first decline since July 2015.

The ECB remains focused on inflation. Despite positive recent developments, the ECB remains cautious in anticipation of a possible uptick in inflation over the coming months. Wages are the biggest factor to watch, with the ECB concerned about wage development in a context of falling productivity.

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