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Chair Lagarde reiterates that rate decision will depend on economic data. Forecasts for 2025 are modest, but geopolitical and trade uncertainty weigh on the Eurozone

Yesterday, the European Central Bank decided on an interest rate cut of 25 basis points, but its approach remains cautious and data-driven, as stressed by President Christine Lagarde. The Eurozone recorded modest growth, with downwardly revised estimates for 2025 GDP. Global uncertainty, amid trade tensions and geopolitical conflicts, continues to affect forecasts.

ECB caution and economic uncertainty

ECB President Christine Lagarde emphasised that future interest rate decisions will be made ‘meeting by meeting’, based on economic data developments. If the data indicate the need for another cut, the ECB will act, but if they suggest a pause, the ECB will stop. This approach reflects the need to constantly monitor developments in the economy, which remains fragile due to external factors such as US trade policy and geopolitical conflicts.

Economic estimates and challenges for the Eurozone

During the year, the Eurozone experienced modest growth and forecasts for 2025 do not seem to promise a significant improvement. Frankfurt revised down its growth estimates for gross domestic product (GDP), forecasting +0.9 per cent for 2025 and lower growth in 2026 and 2027. At the same time, inflation forecasts were revised upwards, with rising energy prices continuing to negatively affect the economy.

Global uncertainty and the risk of economic contraction

Aggressive trade policies adopted by the Trump administration, coupled with geopolitical conflicts, threaten Eurozone growth. Richard Flax, chief investment officer at Moneyfarm, warned that trade barriers imposed by the US could lead to a significant contraction of the economy. In addition, uncertainty arising from negotiations on the end of the Russian invasion of Ukraine has direct implications for energy markets, which particularly affect Europe’s economic stability.

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(Source and Photo: © AndKronos)

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