Will Trump's tariff stick direct global policy? Economists predict that the European Central Bank may cut interest rates twice in the first half of the year

According to the Zhitong Finance APP, a survey of economists shows that European Central Bank (ECB) officials may implement two more rate cuts, but their final decision will still depend on the policy direction of U.S. President Trump.

The economists surveyed expect the ECB to cut rates by 25 basis points in April and June, after which the deposit rate will remain at 2% until the end of 2026. They warned that U.S. policies pose significant risks that could jeopardize economic growth in the Eurozone.

They believe that Trump's series of erratic measures aimed at reshaping the global order is a major trigger. The trade war he initiated has disrupted financial markets, leading to widespread concerns about an economic collapse and leaving national leaders in a dilemma on how to respond.

Arne Petitezas, an analyst at AFS Interest in Amsterdam, stated, "Monetary policy control has fallen into Trump's hands. The ECB's hopes for clarity on tariff policies may prove futile."

For now, both the U.S. and Europe are in a fragile ceasefire—Trump has postponed most of the tariffs announced last week for 90 days to allow for negotiation, and the EU has also delayed countermeasures. However, the U.S.-China standoff continues to escalate.

Alastair Winter of Argyll Europe noted that in this situation, the biggest challenge facing the ECB is "having to appear confident amid Trump's unpredictability."

David Powell, a senior economist for the Eurozone at Bloomberg Economics, stated, "With U.S. tariffs coming into effect, the ECB faces a situation that is completely different from the last meeting, and Eurozone monetary policy must adjust. We expect the Governing Council to cut rates by another 25 basis points at the meeting on April 17, followed by a series of rate cuts this year."

However, Andrzej Szczepaniak of Nomura Securities indicated that Trump's trade war may simplify decision-making for policymakers at the upcoming ECB meeting.

The minutes from the last meeting showed that officials had differing views on whether to pause or continue rate cuts in April. However, the market sell-off triggered by Trump (the European Stoxx 600 index has fallen about 8% since he announced global tariffs) has strengthened the momentum for rate cuts.

"Szczepaniak stated, 'Trump has made the policy decision for the ECB in April. The question now is whether the ECB must lower rates below neutral levels to support the economy.'"

Most respondents expect interest rates to enter a loosening range in the third quarter. Although half believe the neutral rate is 2%, nearly half of the economists think it is at a higher level For the Eurozone economy, breaking through the neutral interest rate may be necessary support. Economists believe that the risks of economic growth declining are significant in the next two years, and the economy will continue to be under pressure until countries like Germany significantly boost demand through increased infrastructure and defense spending.

There is a clear divergence among economists regarding whether inflation will slow as expected—opinions are evenly split on the risks of inflation overshooting or falling below the target.

Ulrike Kastens, a senior economist at DWS, stated: "The economic outlook is full of uncertainty, and we can only take a very cautious approach without pre-committing to any specific interest rate path." In line with her views, most respondents expect that the European Central Bank will not clearly define a lower limit for interest rates.

However, low interest rates may not last long. Over 20% of surveyed economists predict at least one interest rate hike before the end of 2025, with the earliest expected to start in February 2026—just one month earlier than the last economist's expected end date for rate cuts.

Sylvain Broyer from S&P Global Ratings stated: "The European Central Bank will indeed need great flexibility in the coming months. While deteriorating financial conditions and a plunge in oil prices may require the ECB to cut rates in April and June, Germany's massive fiscal stimulus could lead to medium-term inflationary pressures."