The European Central Bank delivered its fourth successive rate cut on Thursday, reducing its main interest rate by 0.25 percentage points to 2.75%. The anticipated move comes as the region faces a challenging economic landscape, with services inflation proving persistent. This decision follows the U.S. Federal Reserve’s latest stance of holding rates steady.
Amid renewed inflationary pressures, the ECB is navigating a complex economic environment with modest growth expectations. December’s euro area inflation reached 2.4%, continuing an upward trajectory after having fallen below the ECB’s target earlier in the year. The end of temporary effects, such as low energy prices, has contributed to this inflation rise.
Recent data paints a bleak picture for the eurozone economy, which showed no growth in the final quarter of 2024. This flat performance follows a 0.4% rise in the previous quarter and fell short of the 0.1% growth forecasted by economists. ECB President Christine Lagarde commented on the current economic conditions, acknowledging that the euro area’s economy is expected to remain subdued in the coming months.
The rate cut came after Germany, the biggest economy in the bloc, reported slower-than-expected economic growth in 4Q24.
The statistics office released data on Thursday showing that the German economy dipped by 0.2% quarter-on-quarter in 4Q24.
Analysts poll from Reuters forecasted, based on available data, the gross domestic product (GDP) to shrink by 0.1% when adjusted for price, seasonal, and calendar variation during the quarter.
The German economy in both 2023 and 2024 has annually receded by 0.3% and 0.2% respectively.
