ECB Lowers Rates, EZ Growth Outlook Amid Rising Uncertainty; Signals Pause Ahead

RTTNews | 63 days ago
ECB Lowers Rates, EZ Growth Outlook Amid Rising Uncertainty; Signals Pause Ahead

(RTTNews) - The European Central Bank cut its key interest rates for the fifth policy session in a row and also lowered the growth forecast for the euro area mainly due to prospects of weak exports and investment in the backdrop of high trade uncertainty amid the tariffs war, and signaled a pause in the easing cycle as policy is now deemed less restrictive.

The Governing Council, led by ECB President Christine Lagarde, cut the deposit rate by 25 basis points to 2.50 percent, which is the lowest level since February 2023 when it was at the same level.

The main refinancing rate was lowered by a quarter basis points to 2.65 percent and the lending rate to 2.90 percent, respectively.

The ECB has lowered interest rates by a quarter basis points each in every rate-setting session since September.

"Monetary policy is becoming meaningfully less restrictive, as the interest rate cuts are making new borrowing less expensive for firms and households and loan growth is picking up," the ECB observed.

The central bank for the single currency bloc acknowledged the rising uncertainty and asserted that policymakers will follow a data-dependent and meeting-by-meeting approach to determining the appropriate policy stance.

Responding to reporters' questions, Lagarde said the latest rate cut decision was a consensus with no policymaker opposing, but the Austrian central bank governor Robert Holzmann abstaining.

The bank will not pre-commit to a particular rate path, the ECB reiterated. "If the data indicates to us that the appropriate monetary policy move should be to cut, we shall do so. If, on the other hand, the data indicates otherwise, then we shall not cut and we will pause," Lagarde said.

In the latest round of macroeconomic projections, the ECB staff lowered the euro area growth forecast for this year to 0.9 percent from 1.1 percent. The outlook for next year was downgraded to 1.2 percent from 1.4 percent and the prediction for 2027 was retained at 1.3 percent.

"The downward revisions for 2025 and 2026 reflect lower exports and ongoing weakness in investment, in part originating from high trade policy uncertainty as well as broader policy uncertainty," the bank said.

"Rising real incomes and the gradually fading effects of past rate hikes remain the key drivers underpinning the expected pick-up in demand over time."

The risks to economic growth remain tilted to the downside, the bank said. An increase in defence and infrastructure spending could add to growth, Lagarde said.

Eurozone inflation forecast for this year was raised to 2.3 percent from 2.1 percent. The projection for next year was retained at 1.9 percent and the outlook for 2027 was lowered to 2.0 percent from 2.1 percent.

Revision in headline inflation for this year reflects stronger energy price dynamics, the ECB said.

Core inflation, which excludes energy and food prices, is expected to average 2.2 percent this year, which is lower than the 2.3 percent predicted in December. The forecast for next year was raised to 2.0 percent from 1.9 percent. The outlook for 2027 was retained at 1.9 percent.

"With the increased uncertainty and the prospects of large fiscal stimulus, the ECB's direction of travel after today's rate cut is no longer as clear as it was a few weeks ago," ING economist Carsten Brzeski said. "A pause at the next meeting to come to terms with the new macro reality now looks like a possibility."

read more
German Exports Rise More Than Forecast

German Exports Rise More Than Forecast

Germany's exports increased more than expected in March driven by robust shipments to the US and China, official data revealed on Thursday. Exports increased 1.1 percent on a monthly basis in March but this was weaker than February's 1.8 percent gain, Destatis reported. Shipments were expected to climb 1.0 percent. Meanwhile, imports fell unexpectedly by 1.4 percent, reversing a 0.5 percent ris
RTTNews | 22h 5min ago
German Factory Orders Rebound Ahead Of U.S. Tariffs

German Factory Orders Rebound Ahead Of U.S. Tariffs

Germany's factory orders grew more than expected in March as U.S. manufacturers front-loaded their orders to avoid higher tariffs, official data revealed Wednesday. Factory orders advanced 3.6 percent month-on-month in March after remaining flat in February, Destatis reported. Orders are forecast to grow 1.4 percent.
RTTNews | 1 day ago
Eurozone Private Sector Growth Eases On Weaker Demand

Eurozone Private Sector Growth Eases On Weaker Demand

Euro area private sector growth weakened in April as soft demand conditions limited the speed of expansion and weighed on sentiment, final results of the purchasing managers' survey by S&P Global showed on Tuesday. The HCOB final composite output index fell to 50.4 in April from 50.9 in March, but the reading suggested growth for the fourth straight month.
RTTNews | 2 days ago
Eurozone Inflation Remains Stable At 2.2%

Eurozone Inflation Remains Stable At 2.2%

Euro area annual inflation remained stable in April near the European Central Bank's 2 percent target, but the trade tariff uncertainty clouds the outlook. The harmonized index of consumer prices grew 2.2 percent on a yearly basis in April, the same pace of increase as seen in March, flash data from Eurostat showed on Friday. Prices were expected to climb at a slower pace of 2.1 percent.
RTTNews | 6 days ago
Eurozone Manufacturing Activity Shrinks At Slower Pace

Eurozone Manufacturing Activity Shrinks At Slower Pace

Euro area factory activity contracted at a slower pace in April as production grew at the fastest pace in more than three years, final data of the purchasing managers' survey by S&P Global showed Friday. The HCOB manufacturing Purchasing Managers' Index rose to a 32-month high of 49.0 in April from 48.6 in March. The score was also above the flash estimate of 48.7.
RTTNews | 6 days ago
German Inflation At 6-Month Low, Core Figure Accelerates First Time In 4 Months

German Inflation At 6-Month Low, Core Figure Accelerates First Time In 4 Months

Germany's consumer price inflation slowed for a second straight month in April to its lowest level in six months as energy prices continued to fall, but the core price growth accelerated for the first time since December as services cost growth increased, which warrants caution from the European Central Bank that is set to reduce interest rates further.
RTTNews | 8 days ago
Eurozone GDP Growth Gains Strength In Q1

Eurozone GDP Growth Gains Strength In Q1

Euro area economic growth accelerated in the first quarter as exports may have benefited from higher demand from the U.S. ahead of the imposition of higher trade tariffs. The quarterly growth in gross domestic product doubled to 0.4 percent from 0.2 percent seen in the fourth quarter of 2024, preliminary flash estimates from Eurostat showed on Wednesday.
RTTNews | 8 days ago
German Economy Recovers On Spending, Investment

German Economy Recovers On Spending, Investment

The German economy recovered in the first quarter driven by higher private consumption and investment, flash data from Destatis revealed on Wednesday. Gross domestic product grew 0.2 percent sequentially, offsetting the 0.2 percent fall in the preceding quarter. The rate also matched economists' expectations. The calendar-adjusted GDP posted an annual fall of 0.2 percent.
RTTNews | 8 days ago