Recession looms for the euro area, with the latest batch of data showing momentum has evaporated. The economy contracted by 0.1% in the third quarter, most of the bloc’s economies are flatlining, and Germany, its biggest engine of growth, is shrinking. Even supposedly good news, such as slowing inflation, just illustrates how quickly the outlook is deteriorating. It’s time to improve coordination between fiscal and monetary policies, which worked wonders during the pandemic but risks being rendered pointless.
The European Central Bank should accept that its interest rate-hiking cycle is over. Inflation has declined to the slowest pace since Russia invaded Ukraine, as the base effects from the energy-price shock fall out. October consumer prices rose by just 2.9%, down from 4.3% in September. Higher for longer may be the current global central banker mantra, but before long it may dawn on the ECB that September’s deposit rate increase to 4% was a step too far. While the inflation element of stagflation is under control, stagnation still stalks the region.