The European Central Bank behaves like those predictable couples that you know will never improvise because it is not in their DNA. If the Federal Reserve surprised everyone with its latest 0.5% rate cutthe ECB has remained on the established roadmap and has acted as expected: with a rate cut of a quarter of a point. Nobody has been surprised.
It is the second consecutive time that the agency decides to lower rates, which is something that It has not been confirmed for thirteen years and another drop is still expected in December, at the last meeting of European banks before the end of 2024.
The reasons are multiple. The euro zone has managed to bring down inflationwhich in August stood at 2.2% but which in September has already fallen five tenths to 1.7%. This means that prices are already falling below the 2% barrier that was the objective that the ECB wanted to achieve when it began raising rates.
But there are other economic and more weighty reasons that affect countries of vital importance within the Union. The slowdown of the economy in France or Germany has forced the ECB to rethink its monetary policy and give them the push they need. Germany has had to publicly acknowledge that for the second consecutive year it is going into recession, with an economic contraction of -0.2% and its automobile industry is dying due to price competition exerted by third countries such as China. For that reason, weakening the euro is positive for the German machine which automatically becomes more competitive by being able to make its exports cheaper.
The case of the government of Scholzis that it has not recovered since the Invasion of Ukraine, when its energy dependence on Russia became evident. And since then, from being the locomotive of Europe it has become the sick man of the continent. If the German government’s predictions come true, Germany will suffer a recession for two consecutive years that has not been seen in the country since the beginning of the century. Forks the only G-7 state that would be in recession this year…
In reality, this rate drop is good for activating the economy of any European country, it is also positive for Spain, whose macroeconomic data is really good compared to any of our neighbors, with growth for this year, which could be 2.7% according to government forecasts. With this decision, the ECB gives an economic boost to the member states but also helps to activate private consumption since there are many citizens who have been waiting for the right moment to start buying a home.
Michelangelo is one of them. Newly married and with rent prices through the roof, he has been looking for an apartment to buy for months but he knows that with the rate reduction there will be a new reduction in the Euribor and that means that, if he is patient, he will get better conditions when he goes to the bank to take out a mortgage.
According to experts, the Euribor could close the year at 2.5% and average mortgages of 150,000 euros for 25 years would become cheaper by almost 120 euros per month. Antonio Gallardo, economic expert at Asufin, from the Association of Financial Users, assures that “this is a drop that was discounted, the Euribor is trading at an average of 2.75% so far this month and that means that others are anticipated. two more drops in the next year, predictably one will be this winter or at the end of the year depending on how the start of 2025 is and another in spring.”
The rate cut has been adopted unanimously by all the members of the Council who were meeting in Slovenia. The ECB considers that inflation is controlled and that will return to 2% throughout next 2025 (since underlying inflation, which does not take into account the most volatile elements such as energy and fresh food, still needs to be overcome). “They admit weakness in economic growth above what was expected, but they say that there is no recession and that the labor market remains solid, although with symptoms of slowdown in the creation of new jobs. They do not commit to a predetermined rate reduction program and will continue to make decisions depending on the data they learn at each meeting,” explains Antonio Castelo, economist at iBroker. Christine Lagarde always paying attention to the data and from “meeting to meeting”. “The fact that the market has not reacted to the decision and subsequent communication from the ECB confirms that it coincides with what was expected and that it has not been any surprise.” The ECB maintains the established script and the markets react with the greatest of calm, without changes.
