Eurozone inflation continues to fall, and other economy stories to read this week

Eurozone inflation plunged for the third consecutive month in November, falling to 2.4% from 2.9% in October, and putting it below the forecasted 2.7%. The drop was driven by lower inflation across most product categories except unprocessed food.

Even core inflation – which excludes food and energy prices – fell sharply to 3.6% from 4.2%.

But policymakers say the path ahead will not necessarily be smooth, warning that the "last mile" of disinflation to get price rises down to 2% could be hard.

The European Central Bank (ECB) expects inflation of 3% next year, falling to its 2% target in late 2025. Inflation was above 10% a year ago.

Investors expect interest rate cuts by April 2024, despite ECB President Christine Lagarde insisting rates will remain stable for several quarters.

Stringent central bank actions to combat inflation could push some developed countries into a recession next year, according to the Organization for Economic Co-operation and Development (OECD).

"The risks around [a soft landing] are pretty high," OECD Chief Economist Clare Lombardelli told The Guardian. “The tightening of monetary policy needed to tackle inflation is taking effect. Despite stronger-than-expected GDP growth in 2023, tightening financial conditions, weak trade and subdued confidence are taking a toll.”

The OECD’s 38 member countries overall are forecast to grow by 1.7% overall in 2023, dropping to 1.4% in 2024.

Germany is expected to have the lowest performance among developed countries this year, with a 0.1% contraction before 0.6% growth in 2024. The wider Eurozone is also facing economic challenges, and the UK is facing sluggish growth.

The OECD also expressed concern over the potential of the Hamas-Israel war to disrupt energy and financial markets and major trade routes.

China’s manufacturing activity declined in November for a second consecutive month, indicating the need for additional stimulus measures, according to Reuters. The official Purchasing Managers’ Index fell to 49.4 in November from 49.5 in October due to sluggish domestic and international demand, putting it below an expected 49.7.

South Korea also reported a drop in manufacturing production – down 3.5% in October from a month earlier. Japan, however, bucked the regional trend, with factory output up 1.0% in October, driven by higher production of integrated circuits and automobiles. However, economists say external demand faces looming risks.

US economic activity slowed in November, according to the Federal Reserve's latest “Beige Book” survey. Consumers cut back on discretionary purchases like furniture and appliances last month. Meanwhile, the labour market remains tight for several districts, the Fed notes, with most registering flat or small job gains as demand eases.

The French economy shrank by 0.1% in the third quarter, according to revised data. However, overall government growth projections for 2023 remain unchanged at 1%, as inflation eased off more than expected in November.

The UK's sluggish economic growth is concerning the head of the Bank of England, who has ruled out cuts to interest rates in the near future, the BBC reports. UK inflation has decreased sharply in recent months but remains high at 4.6%, double the 2% target. Reducing it further will be “hard work”, Bank of England governor Andrew Bailey said.

Germany's unemployment rate rose in line with analysts' expectations in November. The seasonally adjusted rate of 5.9% is up from 5.8% in October, with job openings dropping to 733,000 – down by 90,000 from a year ago.

India’s GDP growth came in far above expectations in July-September at 7.6%, versus the 6.8% forecast. This has prompted economists to raise their growth forecasts for the fiscal year ending on 31 March 2024 to 6.7-7.0% – a figure above the government’s prediction of 6.5%.

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