The ECB Survey of Professional Forecasters - First quarter of 2024

• = Summary =
  In the ECB’s Survey of Professional Forecasters (SPF) for the first quarter of 2024, expectations for headline HICP inflation, and those for HICP inflation excluding energy and food (HICPX), were revised down compared to the previous survey (conducted in the fourth quarter of 2023).
• Headline inflation was expected to decline from 2.4% in 2024 to 2.0% in both 2025 and 2026.
• Longer-term HICP inflation expectations (for 2028) were also revised down, by 0.1 percentage points to 2.0%.
• Respondents expected a slight contraction in real GDP in the final quarter of 2023, followed by a slow recovery of economic activity throughout 2024.

Table 1

• Results of the SPF in comparison with other expectations and projections
  (annual percentage changes, unless otherwise indicated)
  Survey horizon
  2024
  2025
  2026
  Longer term
  HICP inflation
  Q1 2024 SPF
  2.4
  2.0
  2.0
  2.0
  Previous SPF (Q4 2023)
  2.7
  2.1
  -
  2.1
  Eurosystem staff macroeconomic projections (December 2023)
  2.7
  2.1
  1.9
  -
  Consensus Economics (January 2024)
  2.2
  2.0
  2.0
  2.0
  Memo: HICP inflation excluding energy, food, alcohol and tobacco
  2.6
  2.1
  2.0
  2.0
  2.9
  2.2
  -
  2.0
  2.7
  2.3
  2.1
  -
  2.5
  2.1
  -
  -
  Real GDP growth
  Q1 2024 SPF
  0.6
  1.3
  1.4
  1.3
  Previous SPF (Q4 2023)
  0.9
  1.5
  -
  1.3
  Eurosystem staff macroeconomic projections (December 2023)
  0.8
  1.5
  1.5
  -
  Consensus Economics (January 2024)
  0.5
  1.3
  1.5
  1.3
  Unemployment rate
  Q1 2024 SPF
  6.7
  6.6
  6.5
  6.5
  Previous SPF (Q4 2023)
  6.7
  6.6
  -
  6.5
  Eurosystem staff macroeconomic projections (December 2023)
  6.6
  6.5
  6.4
  -
  Consensus Economics (January 2024)
  6.8
  6.8
  -
  -
  1) Longer-term expectations refer to 2028.
• 2) As a percentage of the labour force.
• = 1 HICP inflation expectations revised down for 2024-25 =
  SPF respondents revised down their HICP inflation expectations for 2024 and 2025.
• Compared to the previous survey round, inflation expectations for 2024 were revised down by 0.3 percentage points to 2.4% and those for 2025 were revised down by 0.1 percentage points to 2.0% (see Chart 1).
• Expectations for 2026 (which were not surveyed in the previous round) stood at 2.0%.
• Respondents’ qualitative explanations suggest the downward revisions mainly reflected the impact of lower than previously expected oil prices and data outturns for headline HICP as well as weaker economic activity.
• Compared with the December 2023 Eurosystem staff macroeconomic projections, inflation expectations in this SPF round were 0.3 and 0.1 percentage points lower for 2024 and 2025 respectively but 0.1 percentage points higher for 2026 (see Table 1).

Chart 1

• HICPX inflation expectations for 2024, 2025 and 2026 stood at 2.6%, 2.1% and 2.0% respectively – representing downward revisions of 0.3 percentage points for 2024 and 0.1 percentage points for 2025.
• Respondents indicated that the downward revisions reflected the impact of lower than previously expected data outturns for HICPX inflation as well as weaker economic activity.
• Aggregate probability distributions for the calendar years from 2024 to 2026 are presented in Chart 2.
• According to the qualitative remarks, the main uncertainties and upside risks relate to geopolitical developments, energy prices and wage outcomes.

Chart 2

• This chart shows the average probabilities assigned to different ranges of inflation outcomes in 2024, 2025 and 2026.
• = 2 Longer-term inflation expectations revised down to 2.0% =
  Longer-term inflation expectations (which relate to 2028) were revised down by 0.1 percentage points to 2.0%.
• [3] The median and modal point expectations were unchanged at 2.0% (see Chart 3).
• In particular, there was a drop off in respondents reporting longer-term inflation expectations of 2.2% or above and an increase in those reporting 2.0% or 2.1% (see Chart 4).

Chart 3

Longer-term inflation expectations
(annual percentage changes)

Chart 4

• This chart shows the spread of point forecast responses.
• Uncertainty surrounding longer-term inflation expectations remained at elevated levels, while the balance of risks remained broadly neutral.
• The high level of “aggregate uncertainty” (see Chart 5) stemmed from a combination of elevated “disagreement” and heightened “individual uncertainty”.

Chart 5

• This chart shows the average probabilities assigned to different ranges of inflation outcomes in the longer term.
• The mean longer-term expectation for HICP inflation excluding energy and food (HICPX) was unchanged at 2.0%.
• = 3 Real GDP growth expectations revised down for 2024 and 2025 =
  GDP growth expectations in the first quarter of 2024 survey round stood at 0.6% for 2024, 1.3% for 2025 and 1.4% for 2026 (see Chart 6).
• Longer-term growth expectations (referring to 2028) were 1.3%, the same as in the previous survey round.

Chart 6

• Expectations for real GDP growth
  (annual percentage changes)

  Respondents’ short-term GDP outlook includes a slight contraction in the final quarter of 2023, followed by slow recovery of economic activity throughout 2024.

• [5] Expectations for quarter-on-quarter GDP growth for the period between the fourth quarter of 2023 and the third quarter of 2024 were slightly lower than in both the previous survey round and the December 2023 Eurosystem staff macroeconomic projections (see Chart 7).

Chart 7

• Expected profile of quarter-on-quarter GDP growth
  (quarter-on-quarter percentage changes)

  Note: The grey area indicates one standard deviation (of individual expectations) around average SPF expectations.

• Compared to the SPF round for the first quarter of 2022 (conducted in early January, before the invasion of Ukraine), the implied level of real GDP for 2026 is about 3.5% lower (see Chart 8).

Chart 8

• Uncertainty about the growth outlook remained at elevated levels (see Chart 9 and Chart 10).
• For the longer horizon, it remained positive with a small upward movement compared to the previous survey round.

Chart 9

• Aggregate probability distributions for GDP growth expectations for 2024, 2025 and 2026
  (x-axis: real GDP growth expectations, annual percentage changes; y-axis: probability, percentages)

  Notes: The SPF asks respondents to report their point forecasts and to separately assign probabilities to different ranges of outcomes.

• This chart shows the average probabilities assigned to different ranges of real GDP growth outcomes in 2024, 2025 and 2026.

Chart 10

• This chart shows the average probabilities assigned to different ranges of real GDP growth outcomes in the longer term.
• Similar to the trajectory of the previous round, the numbers imply that the unemployment rate is expected to increase in 2024 and then gradually decrease over the rest of the horizon (see Chart 11).
• Respondents noted that the labour market has remained surprisingly resilient relative to real economic conditions and the economic cycle.

Chart 11

• Aggregate uncertainty has fluctuated around elevated levels (higher than those prevailing before the pandemic) in recent survey rounds.
• Regarding risks, respondents noted primarily upside risks to the unemployment outlook amid the weak outlook for growth and slightly higher than previously expected labour cost increases in 2024 and 2025 (see Chart 12 and Chart 13).

Chart 12

• This chart shows the average probabilities assigned to different ranges of unemployment rate outcomes for 2024, 2025 and 2026.
• Expectations for 2026 were not surveyed in the third and fourth quarter of 2023 rounds.

Chart 13

• This chart shows the average probabilities assigned to different ranges of unemployment rate outcomes in the longer term.
• Respondents expected the ECB’s
  MRO interest rate to remain at 4.5% in the first quarter of 2024.
• They expect further declines to 3.0% in 2025 and 2.75% in 2026 (see Chart 14a).
• On average, the
  USD/EUR exchange rate was expected to rise from 1.09 in the first quarter of 2024 to 1.13 in 2026 (see Chart 14b).
• Compared with the previous round, the expected level of
  US dollar-denominated oil prices was revised down over the entire horizon.
• Respondents expected wage growth to moderate to 2.8% in 2026 and revised down their expectations of longer-term wage growth (2028) by 0.3 percentage points from 2.9% to 2.6% (see Chart 14d).

Chart 14

• Expectations for other variables

  = Annex (chart data) =
  Excel data for all charts can be downloaded here.

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• This is in line with the historical average for the response rate in rounds conducted in the first quarter of the year.