The European Central Bank (ECB) plans to reduce interest rates twice more, based on a Bloomberg survey of analysts who do not foresee rates falling below 2%.
Analysts anticipate consecutive rate cuts in April and June following six prior reductions. However, beyond these actions, the deposit rate is expected to remain steady at 2%, diverging from earlier predictions of a 1.75% decrease projected for March 2026.
The shift in expectations is attributed to European governments’ initiatives to expand defense investments, which might stimulate economic growth and raise inflation levels. Germany, in particular, has announced substantial plans to enhance its infrastructure spending with significant financial outlays.
Economic experts such as Marco Wagner from Commerzbank suggest that increased fiscal activity will likely elevate inflationary pressures by late 2026. Austria’s Robert Holzmann cautioned that the ECB should pause further rate reduction activities, implying the possibility of a rate hike if inflation accelerates beyond control.
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Meanwhile, Finland’s Olli Rehn expressed a differing view, indicating that there might not be an imperative to decelerate easing measures. The market shows hesitancy, with adjustments in monetary easing predictions this year and considering a potential April pause.
Survey participants still project an improvement in the euro-zone economy, predicting GDP growth of 0.9%, 1.2%, and 1.5% over the next three years. This aligns broadly with the ECB’s forecasts. TD Securities economists highlight that fiscal spending initiatives for Germany and the EU could bolster this growth if they proceed.
Yet, challenges remain, such as the potential adverse impacts of tariffs, which continue to weigh negatively on economic outlooks. Inflation is forecasted to average 2.2% in 2025, then slightly dip to 2.0%, and rise again to 2.1% in the following years, marking a slight increase compared to previous surveys.
The ECB’s measured approach in rate adjustments reflects a complex interplay of fiscal policies and inflation forecasts. As European nations ramp up spending, the central bank balances stimulus with inflation control, while economic growth projections provide a cushion for potential challenges.
