>> GROUP: Shadow ECB Council / EZB-Schattenrat  Volker Northoff

Sonsoles Castillo (BBVA): Over the last three months

- GDP has surprised to the upside in Q1, thanks to services and manufacturing being less of a problem. While, this poses an upward bias on growth projections, I maintained unchanged our current projections for the EZ growth this year (0.7%) and next (1.4%).

- Inflation has been slightly higher than expected, particularly in services, so I revised +0.2pp the projection for headline inflation this year (to 2.5%). While I continue to expect inflation to converge around 2% by mid 2025, the recent rebound of core/services inflation (on a monthly basis) and wage figures in 1Q24 signal that the risk to inflation are on the upside.

- On the positive side, regarding fiscal policy, budget corrections of around 0.5 to 1pp of potential GDP in large countries are expected to start in 2025. So, going forward, the ECB could be more confident on the fiscal policy stance going forward

- All in all, my vote is for the ECB to cut the three main interest rates by 25 bps in June. As we enter a new phase, reducing the degree of monetary policy restriction, the "data dependent approach" could be less useful. This, while the ECB should no pre commit with the rate cuts path, some guidance (linked to inflation dynamics) would be convenient.
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