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本周降息几无悬念!欧元区经济疲软 欧洲央行利率或一降再降

This week's interest rate cut is almost certain! Europe's economy is weak, and the European Central Bank may reduce rates repeatedly.

Zhitong Finance ·  Jan 27 07:05

Weak economic growth in the Eurozone will prompt the European Central Bank to continue lowering interest rates.

According to Zhito Finance, the performance of the Eurozone economy, which is below the global average, is persuading the European Central Bank that it can further loosen constraints on economic growth by lowering interest rates for the fourth consecutive time this week. Surveys show that data to be released this Thursday may indicate that Germany, the Eurozone's largest economy, only grew 0.1% in the fourth quarter, down from 0.4% in the third quarter. Subsequently, the European Central Bank will announce its interest rate decision.

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S&P Global's business survey released last week has sparked some hope that a slight recovery might be feasible. However, officials are increasingly convinced that the inflation rate will return to 2%, and they will not be intimidated - especially in the face of uncertainty, particularly if Trump is re-elected as President of the USA, casting a shadow over businesses and households.

Goldman Sachs' chief European economist Jari Stehn stated: "The risks currently facing the Eurozone economy are related to growth, rather than inflation. The European Central Bank can and should further cut interest rates to support economic activity."

Delving into the 20 member countries of the EU, Germany and France are largely to blame for the weakness, as both countries are experiencing political turmoil. Preliminary data released by Germany this month estimates a contraction of 0.1% in the fourth quarter. France may stagnate. Regarding the economies of other member states, Italy may grow by 0.2%, while Spain, which performed strongly in the region with a growth rate of 0.8% in the third quarter, may grow by 0.6%.

Members of the European Central Bank's governing council previously spoke in Davos and elsewhere, confirming market bets that the European Central Bank will at least cut the deposit rate from the current level of 3% at least twice this week and in March. Analysts surveyed by Institutions also share this outlook.

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One reason for anticipating monetary easing is that, at the current level, borrowing costs continue to suppress economic activity. In a situation of low confidence and where inflation is expected to further slow down, this approach seems no longer necessary. Michala Marcussen, Chief Economist at Industrial Bank, stated: 'The growth outlook for 2025 is bleak, but still within the positive range — concerns revolve around competitiveness. Given the current economic situation, a 25 basis point rate cut at each meeting seems appropriate.'

If interest rates are cut two more times, the European Central Bank's deposit rate will drop to 2.5%, slightly above the neutral range mentioned by ECB President Lagarde. For officials, the neutral rate—that level which neither restricts nor stimulates growth—is an important milestone as they will determine how much further rates should be lowered.

The challenge is that it is difficult to observe the threshold in real time. Most economists expect rates to be between 2% and 2.25%, which means that the ECB will likely cut rates further after March. The median forecast is for rates to stabilize at 2%, although there are significant differences in predictions for the end of the year.

This largely depends on the evolving economic agenda of Trump and whether he will follow through on his promise to impose tariffs on European commodities. ECB officials recently emphasized that any negative impacts are likely to be more apparent in terms of output than prices, highlighting the view that the U.S. president will not disrupt the eurozone's rate-cutting cycle.

Slovak central bank governor Peter Kazimir said last week: "I am more concerned about the negative impact on European economic growth than potential inflation impacts."

However, Morgan Stanley economist Jens Eisenschmidt said that the consequences largely depend on the measures ultimately implemented. He stated: "According to our baseline, with only very limited additional tariffs, not far from those imposed in 2018, the impact would be small and concentrated in 2026. If we raise tariffs to levels closer to what was implied during the campaign, such as a blanket 10% tariff on all goods imported from Europe, the impact would be much larger."

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Another issue is service sector inflation, which remains around 4% despite the overall economic slowdown, although the easing of wage pressures means that businesses will raise prices at a slower rate in the coming months. In this regard, the beginning of the year is crucial, as it is typically when many prices are readjusted. However, S&P Global's PMI indicates that officials must remain vigilant as price pressures continue to mount.

ING Groep economist Bert Colijn stated, "Businesses report that they are passing on the rising costs to consumers. Although the largest inflation risks have diminished, this indicates that the upward risk of inflation has not become a thing of the past."

The translation is provided by third-party software.


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