Physical Address
304 North Cardinal St.
Dorchester Center, MA 02124
The European Central Bank is too late to cut interest rates to help the ailing Eurozone economy, a number of economists polled by the Financial Times have warned.
Almost half of the 72 Eurozone economists surveyed – 46 per cent – said the central bank had “fallen behind” and was inconsistent with economic fundamentals, compared to 46 per cent 43 are optimistic that the ECB’s monetary policy is “on the right track.” “.
The rest said they don’t know or don’t answer, while not a single economist thinks so ECB it was “ahead of the curve”.
The ECB has cut rates four times since June, from 4 percent to 3 percent, as inflation fell faster than expected. At that time, the economic outlook for the currency area continued to weaken.
ECB President Christine Lagarde has acknowledged that rates will need to fall further next year, amid expectations of a deficit. Growth of the Eurozone.
The latest IMF estimates show the currency bloc’s economy growing by 1.2 percent next year, compared to 2.2 percent growth in the United States. Economists polled by the FT are even more pessimistic about the Eurozone, expecting growth of just 0.9 per cent.
Analysts expect the growth gap to mean that Eurozone interest rates end the year significantly lower than US borrowing costs.
The ratepayers at the Federal Reserve expect to reduce borrowing costs by a quarter point only twice next year. Markets are divided between expecting a four to five rate cut from the ECB by the end of 2025.
Eric Dor, professor of economics at the IÉSEG School of Management in Paris, said it was “clear” that the “low risks to real growth” in the Eurozone were increasing.
“The ECB has been very slow to reduce policy rates,” he said, adding that this had a damaging effect on economic activity. Dor said he sees an “increasing likelihood that inflation will undercut” the ECB’s 2 percent target.
Karsten Junius, chief economist at J Safra Sarasin bank, said decision-making at the ECB appears to be slower than at the Federal Reserve and the Swiss National Bank.
Among other reasons, Junius blamed Lagarde’s “consensus-oriented leadership style” as well as “the large number of decision-makers in the ruling council”.
The chief economist of the UniCredit group Erik Nielsen noted that the ECB justified its rise during the crisis by saying that it needed to maintain inflation expectations.
“Once the risk of lowering inflation expectations evaporates, they must (have) to cut prices as quickly as possible – not in small, slow steps,” Nielsen said, adding that the policy Finances were still very restrictive even as inflation continued. song.
In December, after the ECB cut rates for the last time in 2024, Lagarde said “the direction of travel is clear” and for the first time indicated that future rate cuts could happen – that view has always been common sense among investors. and critics.
He gave no guidance on the pace and timing of future cuts, saying the ECB would decide on a meeting.
On average, 72 economists polled by the FT expect Eurozone inflation to fall to 2.1 percent next year – above the central bank’s target and in line with the ECB’s forecast. – before falling to 2 percent in 2026, 0.1 percent. above the ECB’s forecast.
According to an FT survey, the majority of economists believe that the ECB will continue with the current rate cut in 2025, lowering the deposit rate by another point to 2 percent.
Only 19 percent of all economists surveyed expect the ECB to continue lowering rates in 2026.
Economists’ forecasts for ECB tapering are somewhat weaker than those bought by investors. Only 27 of 72 economists polled by the FT expect rates to fall to the 1.75 to 2 percent range expected by investors.
Not all economists agree that the ECB has acted too slowly. Willem Buiter, former chief economist at Citi and now an independent economic consultant, said “the ECB’s policy rate is very low at 3 percent”.
He noted the stability of core inflation – which, at 2.7 percent, is above the central bank’s target of 2% – and recorded a low demand of 6.3 percent in the financial sector.
An FT investigation has found that France has replaced Italy as the euro zone country most at risk of a sudden and massive sell-off in government bonds.
The French markets have been damaged in recent weeks by the crisisfrontier than before Prime Minister Michel Barnier‘s proposed deficit-cutting budget, which led to the overthrow of his government.
Fifty-eight percent of survey respondents said they were most concerned about France, while 7 percent named Italy. That marked a big change from two years ago, when nine out of 10 respondents pointed to Italy.
“The instability of French politics, feeding the risks of populism policies and the rise of public debt, raising the specter of financial flight and market volatility,” said Lena Komileva, chief analyst of economics in the field of consulting (g+) economics.
Ulrike Kastens, senior economist at German property manager DWS, says she remains optimistic that the situation will not get out of hand. “Unlike (during) the great debt crisis of the 2010s, the ECB has options to intervene,” he said.
Despite the concerns about France, the consensus among economists was that the ECB will not need to intervene in the euro market in 2025.
Only 19 percent think the central bank is likely to use its emergency bond-buying tool, called the Transmission Protection Instrument (TPI), next year.
“Despite the possibility of turmoil in the French bond market, we think there will be room for the ECB to implement TPI,” said Bill Diviney, head of senior research at ABN AMRO Bank.
Additional reporting by Alexander Vladkov in Frankfurt
Data visualization by Martin Stabe
