The ECB Slashes Rates Again: A Nudge Towards Recovery Amid Inflation Tracking
Economic Committee adjusts future projections downwards
In a bold move, the European Central Bank has slashed its policy interest rate by 25 basis points – marking its fourth reduction this year. Despite investments and exports falling short of expectations, the economists predict a gradual rise in both real incomes and investments, setting the stage for potential future growth. The inflation rate is currently inching closer to the 2% target.
Taking a Peek at Frankfurt
Confident about reaching its primary goal of achieving a 2% price target, the European Central Bank (ECB) believes it's on track. In November, consumer prices in the euro area surged by 2.3% – in autumn 2022, they peaked at an all-time high of 10.7%. However, the predicted growth might be slightly weaker than initially anticipated. The recently presented projections mirror forecasts from other institutions like the EU Commission and the International Monetary Fund (IMF). The ECB attributes the slightly higher 2027 inflation forecast to a unique assessment of the impact of the second EU emissions trading system (ETS2).
Understanding the Numbers
Current inflation in the eurozone sits at a moderate 2.2% year-on-year, slightly higher than anticipated[1]. Core inflation, devoid of volatile food and energy prices, climbed to 2.7%, up from 2.4% in March[1]. The real GDP growth expectations for the euro area are more conservative, with estimations of 0.9% for 2025, 1.2% for 2026, and 1.4% for 2027 according to the ECB Survey of Professional Forecasters[4].
Looking Ahead
The ECB anticipates headline inflation to drop steadily, with expectations of 2.2% for 2025, 2.0% for 2026 and 2027, and core inflation to rise gradually across all horizons[4]. The ECB aims to stabilize inflation at its desired medium-term target of 2%[5]. However, economic growth is expected to remain modest amidst rising trade tensions and uncertainties that could impact performance[5].
Keeping an Eye on Key Players
The ECB has been maintaining a watchful eye on the situation, recently lowering interest rates and adopting a data-dependent approach for future decisions[5]. The EU Commission does not provide specific projections in the search results, but their forecasts generally align with ECB assessments. The IMF does not have specific data for the euro area in the search results, but they often monitor and comment on global economic conditions, usually in line with other international organizations' evaluations[6].
- The European Central Bank (ECB) has slightly revised its inflation forecast for 2027, attributing the change to a unique assessment of the impact of the second EU emissions trading system (ETS2).
- Recently, the ECB lowered interest rates and adopted a data-dependent approach for future decisions, signaling its close attention to economic developments.
- Despite the previously announced forecasts from institutions like the EU Commission and the International Monetary Fund (IMF), the expected growth might be somewhat weaker than initially anticipated.
- In the coming years, the ECB aims to stabilize inflation at its desired medium-term target of 2% while keeping a watchful eye on the performance of businesses and finance, along with any potential disinflation factors.