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Reuters
a day ago
- Business
- Reuters
Upbeat ECB keeps rates steady, raising doubts about further easing
FRANKFURT, July 24 (Reuters) - The European Central Bank left interest rates unchanged on Thursday and offered a modestly upbeat assessment of the euro zone economy, raising doubts among investors about further policy easing even while U.S. tariff threats cloud the outlook. The ECB has cut its policy rate eight times since June 2024 after taming a surge in prices that followed the end of the COVID-19 pandemic and Russia's 2022 invasion of Ukraine. But the economy was now in a "good place" and growth is in line with projections or a "little bit better", ECB President Christine Lagarde said, bolstering market bets that the ECB may be done with cutting rates altogether. Financial markets which had fully priced in a rate cut this autumn just days ago now see only an 80% chance of a move, and even that may not come until the spring. Confirming waning appetite for rate cuts, sources close to the discussion said the bar for a move in September was high and would require weaker growth and inflation, along with lower staff projections. Lagarde herself took a more measured stance and would not be drawn into rate cut talk. "We are in this wait-and-watch situation," Lagarde told a press conference. "We are in a good place because our projections point to inflation stabilising at target in the medium term." She said the ECB's baseline projection for modest growth and inflation at its 2% target continued to hold, and that most data since the June data have confirmed that outlook. Lagarde's optimistic tone even prompted some economists to look again at their own projections. "We are revising our forecasts and no longer expect a final cut of the ECB deposit rate to 1.75% at the September meeting," Commerzbank economist Jörg Krämer said. "Now expect an unchanged deposit rate of 2.0% for the rest of this year and for 2026." Recent data suggest the economy is holding up well and fresh PMI surveys out on Thursday indicated an acceleration in business activity, led by a solid improvement in the dominant services industry and with manufacturing recovering. Euro zone banks have seen rising loan demand and policy uncertainty has not yet translated into an economic or market downturn even if some companies are starting to feel the pinch from tariffs in their profits. Trade negotiations still pose a risk and a final deal is far from certain, even as reports suggest that the two sides are moving closer on a possible agreement based on a 15% tariff on U.S. imports of EU goods. "We are attentive to where the negotiations are heading (but) we take the news one day at a time," Lagarde told a press conference. "The sooner this trade uncertainty is resolved, the less uncertainty we will have to deal with and that will be welcomed by many economic actors including ourselves." While the White House has dismissed the reports as speculation, 15% tariffs would be roughly halfway between the ECB's baseline and severe scenarios for the euro zone economy, presented last month, but milder than Trump's threatened 30%. The ECB's June estimate showed that higher U.S. tariffs would result in lower growth and - depending on any EU retaliation - lower medium-term inflation in the euro zone. Even the ECB's baseline projection from June, which incorporates 10% tariffs from the United States, saw price growth below 2% over the next 18 months. Lagarde acknowledged that scenario included the possibility of a temporary undershooting of the inflation target but said it was not a cause for concern. "With growth holding up and inflation at target, we believe the cutting cycle is drawing to a close," Konstantin Veit, a portfolio manager at PIMCO said. "The current 2% policy rate is likely a level considered the mid-point of a neutral euro area policy range by the majority of Governing Council members." Lagarde's upbeat assessment also pushed short-dated German bond yields to their largest daily rise in two months, as traders took it as a signal that another series of rate cuts next year might be unlikely. "Taking today's meeting at face value, the bar for yet another rate cut this year has clearly been raised," ING economist Carsten Brzeski said. "Still, we think that actual inflation could come in lower than the ECB expects and hard macro data could rather disappoint over the summer."
Globe and Mail
a day ago
- Business
- Globe and Mail
Like the Fed, European Central Bank holds off on rate cuts amid tariff upheaval
FRANKFURT, Germany (AP) — The European Central Bank left interest rates unchanged Thursday, hitting pause on rate cuts amid uncertainty over US President Donald Trump's tariff onslaught and high-stakes trade talks marked by threats of drastically higher import taxes on European goods. Bank President Christine Lagarde said the current economic environment and the potential impact of higher tariffs was 'exceptionally uncertain." Higher tariffs could slow investment, growth and inflation - or they could be inflationary by disrupting existing supply chains for parts and raw materials. 'The sooner this trade uncertainty is resolved ... the less uncertainty we will have to deal with," she said. 'And that would be welcome by any economic actors, including trade tensions are resolved in short order, it will clear some of the uncertainty that we have weighing on the decision-making of consumers, of investors, of, untold enterprises." 'You could argue that we are on hold, we are in this wait and watch situation.' The central bank for the 20 countries that use the euro is facing the same dilemma that has led the U.S. Federal Reserve to hold off on cutting rates further: it's hard to tell how high the tariffs will end up after fraught negotiations, and what the ultimate impact will be on the economy. Fed Chair Jerome Powell has been harshly criticized by the Trump for delaying rate cuts. For his part, Powell has said the Fed wants to see the impact of the duties on prices and the economy before making any rate changes. The ECB has already cut rates eight times since June of last year. The monetary authority for the 20 countries that use the euro currency has been lowering rates to support growth after raising them in 2022-2023 to snuff out inflation caused by Russia's invasion of Ukraine and the rebound after the pandemic. With the bench mark rate now at 2%, down from a record high of 4% Analysts say a rate cut in September is a possibility but not a certainty. The reason: ECB's policymakers simply don't know the outcome of talks between the EU's executive commission and the Trump administration. Trump first set a 20% tariff for EU goods, then threatened 50% after expressing displeasure at the pace of talks, then sent the EU a letter informing officials of a potential 30% tariff. EU officials earlier held out hope of winning at least the 10% baseline that applies to almost all trade partners, and analysts think that the actual rate may be lower than Trump's tariff threats. The talks are up against an Aug. 1 deadline, but earlier deadlines have slipped as the sides kept talking. Higher tariffs, or import taxes, on European goods would mean sellers would have to either increase prices for U.S. consumers - risking loss of market share - or swallow the added cost in terms of lower profits. In either case, higher tariffs would hurt export earnings for European firms and slow the economy, which would strengthen the case for another rate cut in September. The ECB's rate cuts have helped support economic activity by lowering the cost of credit for consumers and businesses to purchase goods. Higher rates have the opposite effect and are used to cool of inflation by reducing demand for goods. Growth in the eurozone was relatively strong at 0.6% in the first quarter - though that was partly due to rushed shipments of goods trying to beat the tariffs. Inflation has fallen from double digits in late 2022 to 2% in June, in line with the ECB's target. A stronger euro, which lowers the price of imports, and softer global prices for oil have helped keep inflation moderate.
Yahoo
a day ago
- Business
- Yahoo
European Central Bank leaves interest rates unchanged as it assesses the impact of Trump tariffs
FRANKFURT, Germany (AP) — European Central Bank leaves interest rates unchanged as it assesses the impact of Trump tariffs. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Reuters
2 days ago
- Business
- Reuters
Germany's offshore wind roll-out stalls in H1, lobbies want auction design reforms
FRANKFURT, July 23 (Reuters) - Germany left installed offshore power wind capacity unchanged in the first half of 2025 and industry groups on Wednesday urged the government to introduce improved auction measures this year to ensure more turbine additions. As of June 30, 2025, the country had 9.2 gigawatts (GW) of installed offshore capacity, unchanged from Dec. 31, 2024, but 1.9 GW of new turbines are under construction, said consultancy Deutsche WindGuard, commissioned by the lobbies to gather data. "Offshore wind energy plays a central role in the success of the energy transition," said a statement signed by six wind and engineering groups including VDMA Power Systems and German wind energy association BWE. "The industry must be able to rely on maintaining the expansion target of 70 GW by 2045," it added. Closer in time, a target of 30 GW by 2030 is theoretically enshrined in law. Germany wants to derive 80% of its power consumption from renewables such as wind and solar energy by 2030, compared with 54% reached in the first six months of 2025, of which offshore wind accounted for 5%. Some 3.6 GW of offshore wind capacity has received final investment decisions and a further 17.5 GW have been awarded permits but not been allocated by investors, WindGuard's research showed. But the lobby groups said that for these plans to materialise, the industry needs Europe-wide aligned revenue models, and longer realisation horizons, at least 12 months rather than six, in reflection of longer sourcing and construction times. An overhaul of the auction design should also consider introducing Contracts for Difference (CfDs), which are fixed-price power contracts that guarantee long-term revenue streams. Developers were unhappy with risks related to bottlenecks in supply chains and to "overplanting," a method to allocate proportionally more generation capacity to transmission lines in order to better utilise connecting cables, they said. Overplanting was too rigid and developers should be allowed more flexibility tailored to individual sites, they said.
Reuters
3 days ago
- Business
- Reuters
Central banks told to prepare for climate shock to labour market
FRANKFURT, July 23 (Reuters) - Central banks risk being blindsided by climate-driven shocks to global labour markets unless they overhaul their approach to monetary policy, a report published on Wednesday by the London School of Economics warned. The study found that, even under relatively optimistic scenarios in which global warming is limited to 1.5-2 degrees, climate change would lower labour productivity, particularly in agriculture, construction and other sectors exposed to heat. With up to 1.2 billion workers in 182 countries vulnerable to climate disruption, the report by the Centre for Economic Transition Expertise (CETEx) urged monetary authorities to pay greater attention to environmental risks - from natural disasters to the consequences of the green transition. "Our research shows that central banks should seek to integrate environmental employment risks into their policies and operations," said Joe Feyertag, senior policy fellow at CETEx and author of the report. The European Central Bank and the Bank of England have highlighted the dangers stemming from climate change and its potential impact on inflation, growth and banks' health. But the U.S. Federal Reserve, in many ways the world's most influential central bank, withdrew from a climate-focused network of authorities earlier this year, raising questions about the depth of its engagement on these issues. The report found rich countries were most at risk from the shift away from pollution-intensive industries. By contrast, poorer regions in Africa, Asia and Latin America faced a bigger threat from physical risk such as floods and droughts. These divergent pressures, combined with demographic shifts and tighter immigration policies, could further strain labour markets in developed countries while loosening them in emerging ones, the study said. Feyertag also warned that labour market disruptions could amplify social inequalities, especially in countries with rigid labour markets Inflation tends to be higher in a tighter labour market, all other factors being equal. Low productivity can also contribute to high inflation. Feyertag reviewed 114 central bank mandates and found just 15 of them, including the Bank of England, explicitly reference employment as a main or secondary objective. The Fed and Reserve Bank of Australia include jobs as a core policy goal. This could give some of these banks cover to take bolder action in order to cushion the labour-market impact of climate change. "If their mandate allows, (central banks) could even take more active steps to stimulate demand for workers from low-carbon or climate-resilient employment opportunities and thereby smoothen this path," Feyertag said.
