The Euro economy is facing ongoing challenges and appears poised to enter a technical recession in the upcoming weeks. Dr. Cyrus de la Rubia, Chief Economist at HCOB, expressed concern, stating, “The figures once again depict a discouraging picture as the Eurozone economy shows no clear signs of recovery. Instead, it has contracted for six consecutive months, and the likelihood of a recession since the third quarter remains notably high.”

In Thursday’s ECB meeting, the central bank resisted market expectations, pushing back against aggressive pricing that anticipated nearly 150 basis points of rate cuts in 2024. President Lagarde emphasized the commitment to maintaining rates at sufficiently restrictive levels for as long as needed to bring inflation back to the 2% target. She clarified that the governing council had not discussed any timetable for rate cuts. However, if the Euro Area indeed falls into a recession, as it seems likely, and inflation continues to decline, the ECB might need to reconsider its stance on interest rates. This could involve preparing the market for a series of cuts in the upcoming year. Financial markets are already factoring in approximately five 25 basis point rate cuts in 2024.