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The ECB will be the first to cut interest rates

Key points at a glance

  • 2024 will be characterised by moderate global growth.
  • The U.S. economy is proving robust while eurozone economic data disappoints.
  • Western central banks have come to the end of the rate hiking cycle.
  • Chinese growth remains weak due to the real estate crisis but monetary and fiscal stimulus measures are starting to take effect.

Macroeconomic house view – November 2023


The global economy is in the late-cycle phase. Due to restrictive monetary policy and falling yet still high inflation, the global economy continues to contract. The global purchasing managers’ indices point to weak growth and stagnating activity. While the manufacturing sector is already showing a turnaround in trend, the indicators for the services sector are pointing to a further slowdown in expansion.

Regional discrepancies in growth are increasing. The U.S. economy is heading for a soft landing in 2024. The eurozone is in a difficult place due to the decline in economic growth.

China’s economic outlook is improving thanks to strong political stimulus but the real estate sector continues to cast a shadow. Geopolitical tensions and increasing restrictions are not only chipping away at international trade but they, along with the strong fiscal support, the solid labour market and the robust demand, are threatening to derail medium-term disinflation. That said, central banks in advanced economies have in all likelihood come to the end of their tightening cycle. However, since real interest rates remain negative or barely inside positive territory, the signs are mounting that the neutral interest rate level could be higher than pre-pandemic. To avoid renewed inflationary pressure, therefore, key rates may have to be kept higher for longer and current expectations that interest rate cuts will come soon could prove premature.

United States

After unsustainable growth of almost 5% (annualised) in the third quarter, the U.S. economy is losing momentum somewhat in the fourth quarter, with GDP growth of 2% expected. As before, we think an imminent recession is unlikely. Firstly, the fact that next year is an election year will mean fiscal policy will remain expansionary, despite the record-high budget deficit. Secondly, U.S. consumer spending data, which is still the key to maintaining U.S. economic growth, is encouraging in this respect. Neither consumer confidence surveys nor reported retail sales are showing any signs of recession. In the labour market, unemployment rose to 3.9% and unemployment insurance weekly claims are slowly increasing. Even though these are the first signs of a slowdown, there are still lots of job vacancies and total redundancies are still far off recessionary levels. Inflation continued to fall in October but expectations remain high. The Fed will therefore probably remain in wait-and-see mode for a number of months and conscientiously weigh up the risks of prolonged high inflation against the risks of overtightening before making its next move. In light of the presidential election next year, we shouldn’t expect too much activity from the Fed – barring a recession.


Survey and economic data for the eurozone are also pointing to subdued growth for the fourth quarter as well. While the PMI leading indicators remain in contractionary territory for the sixth month in succession, reported economic data points more towards a stagnation rather than a slump. The labour market seems to be solid, but growth in employment is slowing substantially. Since fewer and fewer jobs are being created, unemployment has now risen to 6.5%. While we are seeing the first signs of an improvement in the manufacturing sector, and also consumer confidence is stabilising at a very low level, retail sales figures continue to fall. Given this not very growth-friendly background and the fact that the other data does not show a clear trend either, the ECB will be sorely tested in the coming months. In an environment of sticky inflation and constant fiscal stimulus, cutting interest rates prematurely would be counterproductive. On the flip side, pursuing a restrictive policy for too long could result in an even deeper economic downturn. We assume that with headline inflation having fallen to 2.4% and core inflation to 3.6%, the ECB’s tightening cycle has definitively come to an end. However, we doubt that they have enough patience and persistence to stick with their restrictive course, which is necessary in light of solid wage increases and fiscal stimulus. In our opinion, the ECB will not take the path of economic pain and will therefore cut rates before the Fed.


China’s economic recovery is proceeding at a moderate pace in the fourth quarter. Against the backdrop of the beleaguered real estate sector, the authorities continue to provide targeted monetary and fiscal stimulus. These measures are slowly taking effect and the growth outlook is gradually improving. The consumer-driven upturn, where retail sales, up 7.6% on the previous year, have surpassed expectations, is beginning to have a positive effect on industrial production. However, investment is still taking a hammering from the real estate sector, and is down -11.3% year on year. Surveys on future economic activity were weak in November and point to a stagnation in the coming quarters. Deflation is still a real risk in China. The slow pace of the upturn means that monetary policy must remain expansionary to promote a self-sustaining upturn. In recent crises, China has been the driving force behind the subsequent global upturn. However, this is a distant prospect on this occasion.