European inflation is falling faster than the European Central Bank expected, slowing to an annual pace of 2.4% in November after peaking at 10.6% in October 2022. If this is the case, the central bank will find it difficult to maintain its “longer-term higher” interest rate. The euro area economy continues to weaken even as consumer price increases ease.
Significantly, inflation in Germany fell to 2.3%, the slowest in two and a half years. The ECB’s 2% target is in sight, suggesting that the punitive monetary tightening of the last 18 months is working – perhaps too well. The manufacturing sector in Germany is struggling with a severe recession and the economy contracted in the third quarter. To make the misery even worse, there is no easy way for the state to help: Prime Minister Olaf Scholz’s fragile coalition now has to contend with a large gap in its budget plans after the Federal Constitutional Court ruled against the government’s use of special funds .
Comments are closed.