Davide Oneglia is betting on two more rate cuts in 2024 as long as the European Central Bank sees the Eurozone disinflation it saw in the first half of the year returning in August and September.
First because he sees signs that wage inflation is peaking and will gradually ease over coming months - which some caveats.
“I think it’s important to remind the audience that the European labor market are very slow moving. So the adjustment in terms of wages to the massive shock that was brought about by the energy crisis that took a lot of time,” David explains. “So we are are still are in a period in which there’s a lot of catch up in wage growth.”
He says most of the indicators the ECB watches are tending to signal "that we are at the peak of wage growth,” supported by business surveys that are run by central banks in the euro system. Importantly he found ECB president Christine Lagardes’ remarks at her post-meeting press conference supporting this view.
Another reason for “disinflation to reaccelerate” in the second half of the year is his forecast for sticky services inflation to start easing, as things like insurance prices which have spiked in the Eurozone - as the did in the U.S. - come down.
Importantly Davide sees core inflation, now at 2.9% going down to 2.5% by the end of this year, giving the ECB more ammo to do more rates.
We also discussed President Lagarde’s assessment of the Eurozone recovery. She sees the service sector as the big growth driver while the manufacturing sector is still weak, in need of investment to fully recover.
Davide says that ECB rate cuts will help historically interest-rate sensitive sectors like manufacturing and housing, especially in Germany you can see the domestic engine for growth has been clogged and needs some reflation to propel a proper recovery.
All in all a comprehensive argument for why the stars are lining up for the ECB to cut rates again in September, and he says in December. As for 2024, Davide sees more cuts in store then too. Dive into our conversation and find out why.
Davide joined the TS Lombard Macro team in January 2017. Davide contributes to the coverage of global macro themes and since February 2022, he is the lead analyst on the Euro Area and ECB. Davide's research interests include central bank liquidity, inflation, labour markets and global supply chains.
Prior to this, Davide spent a year and a half working for the Securities and Finance practice of NERA Economic Consulting in London, where he focussed on asset pricing. Davide graduated in Economics from Bocconi University in 2013, holds an M.Sc. in Economics and Management from London School of Economics.
Davide joined the TS Lombard Macro team in January 2017. Davide contributes to the coverage of global macro themes and since February 2022, he is the lead analyst on the Euro Area and ECB. Davide's research interests include central bank liquidity, inflation, labour markets and global supply chains.
Prior to this, Davide spent a year and a half working for the Securities and Finance practice of NERA Economic Consulting in London, where he focussed on asset pricing. Davide graduated in Economics from Bocconi University in 2013, holds an M.Sc. in Economics and Management from London School of Economics.
ECB to Cut Rates as Wages Peak, Core Inflation Eases: Oneglia