The European Central Bank (ECB) has announced its decision to cut interest rates by 25 basis points, marking the fifth reduction since it began easing monetary policy in June. This move brings the main interest rate down to 2.75%, aligning with market expectations, which had anticipated a 25-basis-point cut with over 90% certainty prior to the announcement.
In a statement on its official website, the ECB emphasized that the process of reducing inflation is progressing as planned. “The inflation continued to develop widely in line with expectations, and it is scheduled to return to the medium target of 2% this year,” the bank noted. Most core inflation measures suggest that inflation will stabilize near the target sustainably. However, local inflation remains elevated, primarily due to delayed adjustments in wages and prices in certain sectors.
The European economy has shown signs of stagnation, with official data revealing a zero growth rate on a quarterly basis in the last quarter of 2024. This stagnation is partly attributed to the contraction of Germany’s economy, the largest in the eurozone, which has now shrunk for two consecutive years. According to the European Statistics Agency (Eurostat), the gross domestic product (GDP) in the euro area remained unchanged during the final quarter of 2024 compared to the previous quarter.
The slowdown follows a 0.4% growth in the third quarter of 2024, as businesses faced instability due to potential trade disruptions under the new administration of US President Donald Trump. Consumers also remained cautious in their spending, impacted by persistent inflation.
Looking ahead, the ECB expects the eurozone economy to grow by 1.1% in 2025, though it acknowledges the possibility of weak growth in the near term due to ongoing uncertainty. Indicators such as the Purchasing Managers’ Index (PMI) and business and consumer confidence metrics issued by the European Commission remain weak, reflecting the challenging economic environment.
Key Highlights of the ECB’s Decision and Economic Outlook
| Aspect | Details |
|—————————|—————————————————————————–|
| Interest Rate Cut | 25 basis points, bringing the main rate to 2.75% |
| Inflation Target | Expected to return to 2% in 2024 |
| Economic Growth | Zero growth in Q4 2024; 1.1% growth projected for 2025 |
| Key Challenges | Weak business confidence, cautious consumer spending, and trade uncertainty|
The ECB’s latest move underscores its commitment to stabilizing inflation and supporting economic recovery, even as the eurozone faces notable headwinds.For more insights into global monetary policy, read about the Federal Reserve’s decision to keep interest rates unchanged in 2025.
This decision highlights the delicate balance central banks must strike between curbing inflation and fostering growth in an uncertain global landscape.
