Investing.com -- The European Central Bank (ECB) is expected to continue its series of interest rate cuts until July, in a bid to protect the euro zone economy from potential U.S. tariffs, according to a majority of economists surveyed.
The upcoming economic plans of U.S. President-elect Donald Trump, which include a minimum 10% tariff on all imported goods, have sparked concerns in financial markets, leading to fears of further strain on the euro zone.
The ECB, under the guidance of Chief Economist Philip Lane, is tasked with finding a balance in policy that neither triggers a recession nor unnecessarily delays inflation control. The inflation rate has recently increased, and the bank must manage this without causing further economic harm.
The euro zone's leading economies, Germany and France, are embroiled in political instability, with economic activity remaining slow. In 2024, Germany's economy contracted by 0.2%. The euro zone finished 2024 in a vulnerable state, according to a PMI survey.
The ECB's Governing Council initiated its easing campaign in June 2024, implementing four interest rate cuts throughout the year, with more expected in the coming months.
All 77 economists participating in a poll conducted from January 10 to 15, predict a 25 basis point drop in the deposit rate to 2.75% on January 30. A 60% majority, or 46 of the 77, anticipate three additional cuts by mid-year, reducing the deposit rate to 2.00%.
The remaining 31 economists offered varied predictions for the end-Q2 rate, ranging from 1.75% to 2.50%. Median poll predictions suggest the rate will remain at 2.00% until at least mid-2026.
Markets have fully priced in a rate cut this month and expect approximately 90 basis points of reductions throughout the year. This contrasts with expectations for the U.S. Federal Reserve, which is only expected to implement a single 25 basis point reduction by year-end due to rising inflation concerns.
The poll predicts growth across the 20-member currency union will likely be 1.0% this year and 1.2% next year.
Recent inflation in the euro zone, which stood at 2.4% last month, is expected to be temporary. According to the poll, inflation is projected to drop to the ECB's 2.0% target in Q2 and remain around that level through Q2 of 2026.
However, when asked whether inflation is likely to be higher or lower than anticipated, a majority of economists (20 out of 34) predicted it would be higher.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.