The ECB cuts rates, lowers GDP forecasts

As had been widely expected, the ECB Governing Council decided yesterday to cut the deposit rate (and the other two key interest rates) by a further 25 basis points to 2.5%. The restrictive effect of monetary policy on the economy has eased significantly. We see these statements as an indication that interest rates may not be lowered further for the time being at the upcoming meeting in April. We expect the next ECB rate cut in June. Today, we look at the new ECB forecasts for Eurozone. The inflation forecast for 2025 has been raised slightly to 2.3% (previously 2.1%), due to stronger expected momentum in energy prices. The inflation forecast for 2026 remained unchanged at 1.9% and was lowered slightly to 2.0% for 2027. High uncertainty regarding global trade is weighing on exports and the propensity to invest and thus ultimately on growth. ECB economists have therefore lowered their GDP forecasts for 2025 to 0.9% and for 2026 to 1.2%. On the other hand, a possible substantial fiscal stimulus through spending in the areas of defense and infrastructure in the Eurozone would strengthen future growth in the Eurozone. As far as the implications for the region are concerned, slight downward revision is obviously negative news regarding the CEE prospects. We already flagged in the Growth Navigator Report that similar revision (higher inflation, lower growth) is taking place in the region as well. At this point the risks, that is tariffs vs. expected fiscal stimulus, seem to balance out.