08:26 AM EDT, 10/07/2024 (MT Newswires) -- UBS said it raised its eurozone gross domestic product growth forecast by 0.1pp to 0.7% for this year while the consensus is for 0.7%, given stronger-than-expected growth in H1 2024.

At the same time, the bank cut its 2025 GDP forecast by 0.3pp to 0.9% while the consensus is for 1.3%, given a weaker outlook for eurozone growth in H2 2024 and H12025.

Growth indicators have been mixed and uneven across eurozone countries and sectors in recent months, but lately, a broader loss of momentum has been evident as manufacturing continues to slow amid a weak external environment and services appear to lose steam too, stated UBS.

The bank believes this warrants a more cautious view on economic activity over the coming quarters and also means that the European Central Bank will lower interest rates faster than UBS assumed until recently -- it now estimates a cut in October and accelerated cuts in early 2025.

Crucially, UBS isn't turning outright pessimistic on eurozone growth -- it isn't calling for a recession. After all, UBS forecasts labor markets to remain relatively resilient, so stabilizing growth, but also preventing wage growth and services inflation from coming down quickly.

However, should European labor markets "break", with unemployment going up a lot, growth would likely be much weaker, wage growth and inflation lower, and the ECB would gain scope to cut rates more significantly than the bank's baseline assumes.