The economic situation in January and February highlights the uncertainties surrounding 2024 with, on the positive side, improvements in the business climate in several countries and resilient labour markets (Europe) or labour markets remaining dynamic (US). Combined with a disinflation trajectory not yet spreading to all sectors (services in particular), all these factors are tending to defer expectations of rate cuts.
In Europe, the scenario of an economic growth rebound, supported by the expected support for household consumption from disinflation, does not yet appear to be fully reflected in the data. While February PMIs suggest an improvement from a supply-side perspective, a shift in demand remains more uncertain. In fact, consumer confidence has recently fallen again in several countries (Germany, France and the United Kingdom), and remains significantly below its historical average, even though disinflation keeps going. However, in terms of core inflation, although goods continue to benefit from the spread of the drop in producer prices, inflation in services has stabilised over the past three months (with the impact of 2023 cost increases on 2024 prices adjustment, particularly in transport or insurance). In fact, the scenario of a reduction in ECB key rates in April – our scenario – is shrouded in increasing uncertainty.
In the US, the economy remains dynamic, as does the labour market (job creation remained strong in January). Core inflation is clearly still too high (3.9% y/y in January) to allow monetary easing by the Federal Reserve in the near future (we expect the first rate cut in June).
Conversely, we have been seeing expectations of a tightening of monetary policy in Japan in recent months (in line with our scenario). However, this forecast is undermined by the latest economic figures: the country went into recession in H2 2023, and inflation (including core inflation) has dropped in recent months.
