Economic outlook 2024
For the Eurozone, the region of Central and Eastern Europe and Austria a further continuous decline in inflation and interest rates is expected, accompanied by a gradual improvement in external demand as well as in consumer sentiment and the associated domestic demand. A significant factor here is a further flattening of the inflation rate in 2024.
A first slight growth impulse from industry is expected for the Eurozone over the course of 2024, whereby the growth in the 1st quarter of 2024 is still seen as rather week. However, this recovery in the industry could be delayed by persistently high inventories in some sectors. Further slightly positive impetus should come from growth in private consumption in 2024. The significant driver for this could be an expected positive real wage growth in a fundamentally robust labour market for the first time in 2 years. Despite the rather stagnating development in 2023 there was no increase in the unemployment rate in the Eurozone apparently due to a general labour shortage as a consequence of demographic change.
In sum, the analysts from Erste Group expect an acceleration of real GDP growth to 0.7% year-on-year in 2024. With a further solidification of this recovery in the 2nd half of 2024 an increase of growth to 1.1% should be possible for 2025.
The inflation in the Eurozone should decline to 2.5% in 2024. Depending on the further development of energy prices in particular, a more volatile inflation trend is possible over the course of the year.
In Austria, the expected easing of inflationary pressure is likely to have a positive impact on real incomes and thus as well moderately on consumer demand. In addition, foreign trade should gradually improve and support economic growth in 2024. This means that a modest economic upturn in real GDP growth of +0.6% is within reach for Austria in 2024. Despite the risk of certain volatility in energy prices, Austrian inflation should continue to decline in 2024 as the pressure from these prices decreases. Inflation in the service sector, which is supported by wage increases, is likely to keep core inflation at a high level for some time. Thus, a clear decline of the harmonised consumer price index (HCPI)-inflation to 3.5% is expected for 2024.
A gradual recovery is also expected in Central and Eastern Europe in 2024 (the real GDP growth in the CEE8 should accelerate to 2.4% year-on-year). Latest improvements in sentiment indicators underpin this expectation. The Economic Sentiment Indicator (ESI) continued to recover in the course of 2023 and thus also supports the expectation of improved private demand in 2024. Real wage growth, declining inflation and a loosening of monetary policy, which has already begun in the CEE region, should increase private household expenditures. On the other hand, the high cost of living, the continuing uncertainty and an increase in the savings rate could slow down the speed of recovery. Investment growth in the region should be supported by the continued inflow of EU funds since the funds from the Recovery and Resilience Fund cushion the change between EU budget periods which would normally be associated with lower investment activity. By the addition of the REPowerEU money the available funds increase considerably. A significant risk for the region’s expectation is a weaker development in Germany as an important export destination for the region.
In 2024 the speed of disinflation may significantly slow down also in Central and Eastern Europe in view of the declining effect of external factors (oil and food prices). It is also expected that demand pressure will remain high due to the tight labour market since the nominal wage growth (including a double digit increase in the minimum wage) has an inflationary effect. Overall inflation in most of the CEE countries is expected to remain well above the inflation target throughout 2024 with a regional average of 4.5%. Year-on-year the Czech Republic with 2.4% comes closest to this goal, Romania with 5.5% has the longest way to go.