The European Central Bank recently cut its benchmark interest rate to 2%, signaling a potential end to its series of reductions over the past year. This decision emerged against a backdrop of slow growth prospects and trade tensions, particularly concerning tariff threats from the U.S. The ECB noted that while uncertainty in trade policies poses challenges for investment and exports, increased government spending and a solid labor market could bolster economic resilience. Furthermore, inflation expectations for 2025 were lowered, but growth forecasts remained unchanged at 0.9%.
The uncertainty surrounding trade policies is expected to weigh on business investment and exports, while rising government investment in defense and infrastructure will increasingly support growth.
Higher real incomes and a robust labor market will allow households to spend more, making the economy more resilient to global shocks.
Christine Lagarde stated that after the recent cut, they are in a good place, suggesting they might be nearing the end of a monetary policy cycle.
Lagarde noted that policymakers were virtually unanimous on the latest cut, marking the most aggressive easing cycle since the recent global financial crisis.
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