EU economy and recovery_SN_Fig 8

Harmonised index of consumer prices (HICP) inflation is projected to decline steadily in the EU, from 6.4 % in 2023 to 2.7 % in 2024 and 2.2 % in 2025. This represents a downward revision from the winter forecast. After its first interest rate cut of 25 basis points in June 2024, the ECB remains divided over the speed and magnitude of the easing cycle. Despite expectations for further rate cuts, the policy path ahead is uncertain, with the ECB emphasising a cautious, data-dependent approach.
The June rate cut was delivered with updated macroeconomic projections that saw a slight upward revision of the euro area inflation forecast, because of higher German, Dutch and Belgian inflation projections. The decline in inflation is largely being driven by the reversal of previous supply-side shocks. However, while goods inflation is dropping quickly, services inflation is proving stickier.