The economic outlook is relatively weak compared to the United States, and the European Central Bank is expected to continue cutting interest rates
The market expects the European Central Bank to announce further interest rate cuts on Thursday, reflecting the different stages of the economies in Europe and the United States. The U.S. economy is growing steadily, while the economic outlook in Europe is weak. Despite the eurozone's inflation rate being above the target level, European Central Bank President Christine Lagarde is confident that inflation will fall back to 2%. The market generally believes that the next two rate cuts are a foregone conclusion, potentially lowering rates to 1.5% or even lower. Political turmoil in Germany and France has exacerbated economic uncertainty, while Spain's strong economic performance highlights the divergence within the eurozone's economies
According to Zhitong Finance APP, the market expects the European Central Bank (ECB) to announce a continued rate cut on Thursday, rather than choosing to pause like the Federal Reserve. This decision reflects the different stages of the economies in Europe and the United States, with the U.S. economy still maintaining robust growth and inflation not yet falling back to the Federal Reserve's target level; meanwhile, the economic outlook in Europe is relatively weak.
Although the inflation rate in the 20 member countries of the Eurozone remains above the target level, ECB President Christine Lagarde has stated that officials are confident that inflation will return to the 2% target by the end of 2025. Therefore, compared to the Federal Reserve, the main issue for the ECB is not whether to continue cutting rates, but rather the extent of the cuts. Currently, the ECB's benchmark deposit rate is 3%.
Bank of America strategist Ruben Segura-Cayuela and his team stated, "The market generally believes that the next two rate cuts by the ECB are a foregone conclusion, but there are still differences regarding the path thereafter." They believe that final data will force the ECB to continue cutting rates, possibly bringing rates down to 1.5% or even lower.
U.S. President Trump has promised to raise import tariffs, a policy that could bring uncertainty to European companies reliant on the U.S. market. Currently, Europe has not become Trump's main target, but this risk still looms.
Lagarde will explain the rate cut decision at a press conference. The ECB began cutting rates as early as June last year, three months ahead of the Federal Reserve. To date, each rate cut by the ECB has been 25 basis points, and it is expected to lower the deposit rate to 2.75% this Thursday.
In addition, the two largest economies in the Eurozone—Germany and France—are experiencing political turmoil, which exacerbates economic uncertainty. The ruling coalition in Germany collapsed last year, with a new round of elections scheduled for February this year, while the country's economy has seen little substantial growth in recent years. The parliamentary elections held in France last summer led to a divided government, and Prime Minister Michel Barnier resigned three months after taking office.
In contrast, Spain, as the fourth largest economy in the Eurozone, has shown strong economic performance. In the fourth quarter of last year, Spain's economy grew by 0.8%, far exceeding that of Germany and France, highlighting the divergence in economic performance within the Eurozone and complicating the ECB's rate cut decision.
The Bank of England is also facing challenges from economic weakness, with the market expecting it to decide on a rate cut at next week's meeting to boost economic growth