Latest news with #euro-zone
Yahoo
3 days ago
- Business
- Yahoo
ECB Set for Last Easy Rate Cut as Trade Fuels Inflation Discord
(Bloomberg) -- Billionaire Steve Cohen Wants NY to Expand Taxpayer-Backed Ferry Where the Wild Children's Museums Are The Economic Benefits of Paying Workers to Move Now With Colorful Blocks, Tirana's Pyramid Represents a Changing Albania NYC Congestion Toll Brings In $216 Million in First Four Months The European Central Bank is about to lower interest rates for the final time before an increasingly complicated inflation outlook risks bringing internal divisions to the fore. As price risks recede, officials have cut seven times in the last year with little friction on the 26-strong Governing Council. An eighth move is expected Thursday, bringing the deposit rate to 2%. But while some would like that to be the bottom — wary of a glut of spending to come by European governments — others want more to underpin flimsy economic growth. The key sticking point is Donald Trump's tariffs — specifically, their knock-on effects for euro-zone prices. The ECB is mapping out various scenarios to try to better grasp what's coming but confidence in any given outcome is in short supply. One policymaker puts the chances of the baseline materializing at less than 50%. The upshot is that the ECB is shifting away from tackling elevated inflation to a phase characterized by the kind of unpredictability seen during Covid and Russia's war in Ukraine. That means it must be attuned to the risk of price gains coming in either side of 2%, according to Katharine Neiss, chief European economist at PGIM Fixed Income. 'It's very possible that the macro picture warrants near-term cuts to support the economy through this period of uncertainty, but that higher rates are needed further out assuming other policy levers such as fiscal come into play,' she said. 'That said, it will be important for the ECB to remain alive to the risk of returning to too-low inflation, as was the case in the decade before 2020.' With price growth nearing the 2% goal, investors still reckon there'll be one more decrease in rates after this week, but aren't sure when. Analysts in a Bloomberg poll are more certain — predicting moves in June and September for a terminal rate of 1.75%. Trump's actions on trade could yet upend those views. While most European Union goods are currently subject to a 10% US levy, that could jump to 50% in July. The ECB's scenario analysis, due as part of its quarterly outlook, underscores the uncertainty. As things stand, the near-term inflation picture looks benign: Energy costs have cratered and the euro has strengthened since the US first unveiled 'reciprocal tariffs' in April. Eurostat figures for May will arrive Tuesday, likely showing an on-target reading of 2%. But how prices evolve will hinge on possible retaliation from Brussels and how the US-China relationship pans out. In the longer term, European spending on defense and infrastructure, fractured supply chains and an aging workforce could feed inflation pressure. Against this backdrop, hawkish Executive Board member Isabel Schnabel has cautioned against more easing, arguing that the ECB is 'in a good place to evaluate the likely future evolution of the economy' and act as needed. Dutch central-bank chief Klaas Knot and Bundesbank President Joachim Nagel have also warned that the medium-term inflation outlook is murky. For Holger Schmieding, chief economist at Berenberg, the future will be dominated by upside threats to prices. 'The main reasons are demographics and the structural labor shortage,' he said. 'At the moment, much is overshadowed by Trump's policies. But monetary policy is already working, and there's no need to add significantly more stimulus now.' Some Governing Council members are open to more forceful action. Belgium's Pierre Wunsch has said the ECB may need to support the economy 'a little bit' to ensure inflation doesn't fall below target. Lithuania's Gediminas Simkus said there are increasing risks of an undershoot on prices. What Bloomberg Economics Says... 'The ECB will almost certainly lower rates by 25 basis points again at its next meeting. The disinflationary impact of US tariffs, the latest data on wage growth and our forecasts all point to the euro area no longer really having an inflation problem. The Governing Council will also probably retain a dovish tone to keep open the door for further easing later in the year.' —David Powell, senior euro-area economist. Click here for full PREVIEW Should the outlook start to point in that direction, it's not clear what the optimal strategy would be. While some may back more rate reductions to guard against price expectations falling too low, others would probably opt for Schnabel's 'steady-hand' approach. Investors may not get a lot more guidance from President Christine Lagarde on Thursday. Rather than hinting what may happen, the ECB has recently preferred to highlight the factors on which its decisions will be based. 'There are massive uncertainties littering the road ahead and the ECB will take great care not to pre-commit itself during the next press conference,' said Sonja Marten, head of currency and monetary-policy research at DZ Bank. She sees two more cuts this year, with little reason to turn stimulative because growth should look rosier again in 2026. Some analysts expect more easing. AXA Group Chief Economist Gilles Moec said the continued headwinds from the US and the danger of Chinese goods being diverted to Europe point to softer inflation and rates dropping as low as 1.25% — even if policymakers will find it difficult to get there. 'Every single cut from now on is going to be much tougher,' he said. 'There'll be growing resistance, so it'll come down to the data to convince the Governing Council to go as far as I think they'll have to end up going. It'll make for complicated conversations after the summer.' --With assistance from Jana Randow. YouTube Is Swallowing TV Whole, and It's Coming for the Sitcom Millions of Americans Are Obsessed With This Japanese Barbecue Sauce Mark Zuckerberg Loves MAGA Now. Will MAGA Ever Love Him Back? Will Small Business Owners Knock Down Trump's Mighty Tariffs? Trump Considers Deporting Migrants to Rwanda After the UK Decides Not To ©2025 Bloomberg L.P. 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
Yahoo
22-05-2025
- Business
- Yahoo
In Full: ECB's Guindos on Inflation, Financial Stability
European Central Bank Vice President Luis de Guindos discusses the ECB's Financial Stability Review, in which it warned that heightened investor concern over the riskiness of US assets could further jolt the world's financial system. Talking with Bloomberg's Alexander Weber on May 22 in Frankfurt, Guindos also comments on the outlook for inflation, monetary policy and the euro-zone economy. 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
Yahoo
19-05-2025
- Business
- Yahoo
Euro-Area Inflation to Fall Below 2% on US Tariffs, EU Predicts
(Bloomberg) -- How a Highway Became San Francisco's Newest Park America, 'Nation of Porches' Maryland's Credit Rating Gets Downgraded as Governor Blames Trump NJ Transit Train Engineers Strike, Disrupting Travel to NYC NYC Commuters Brace for Chaos as NJ Transit Strike Looms Euro-area inflation will fall below the European Central Bank's target next year because of fallout from US trade policies, according to the European Commission. Consumer-price growth will slow to the 2% goal by the middle of this year and average only 1.7% in 2026, the EU's executive arm said in its spring forecast released on Monday. Downward pressures including lower energy costs, the diversion of Chinese goods and a stronger euro are having a 'clearly negative' impact, the commission said. Economic expansion is seen picking up to 1.4% next year from 0.9% in 2025, a slightly more optimistic view compared to the last ECB forecast in March and the International Monetary Fund's global outlook in April. Brussels officials see uncertainty weighing on domestic demand, but labor markets staying robust. 'Inflation is declining faster than previously forecast and is on track to reach the 2% target this year,' European Economy Commissioner Valdis Dombrovskis said. 'But we cannot be complacent. The risks to the outlook remain tilted to the downside, so the EU must take decisive action to boost our competitiveness.' The ECB will present its own set of quarterly forecasts alongside its next rate decision on June 5. Investors are expecting another reduction in borrowing costs, with many policymakers sharing the view that US tariffs will put downward pressure on prices. Uncertainty about how policies evolve is high. Most euro-zone exports to America are subject to a 10% tariff during a 90-day negotiation period. The EU is seeking to secure favorable terms in these talks, but it has also prepared a list of products to hit with counter-levies should discussions fail. The EU's forecasts assume that US tariffs remain at 10%, with higher duties on some products and exemptions on others, and used a cut-off date of April 30 for other inputs. Some de-escalation between the US and China was expected, but with duties remaining at a higher level than what was announced on May 12. The two nations agreed to temporarily slash tariffs to allow for talks after previously raising them to prohibitive levels. The tensions have raised the threat that a large amount of Chinese products get rerouted to the euro zone, intensifying competition and driving down prices. 'Given the magnitude of these flows, this is set to markedly increase competitive pressures in consumer goods markets across the EU,' the commission said. Together with the appreciation of the euro, this should push goods inflation down to close to 0% in the euro area, it said. Services costs have remained more elevated, mostly due to robust wage growth. It's expected to slow 'only gradually' to 2.5% toward the end of 2026. The situation presents a challenge to the ECB, which has to weigh the disinflationary impacts from tariffs in the short term against the longer-term effect from disrupted supply chains and higher fiscal spending in Europe. Many policymakers are wary of taking interests much lower and into territory where they'd boost economic activity. When the ECB presents new forecasts next month, it will produce different scenarios to capture various possible trajectories on how US tariff policy will evolve. Germany, the region's biggest economy, won't see any economic growth this year before rebounding to a 1.1% pace in 2026, the forecasts show. Austria is the only country in the EU predicted to suffer a contraction in 2025. The commission expects the euro zone's collective debt burden to rise to 91% of gross domestic product next year from 89% in 2024. That doesn't include some of the higher defense spending made possible by a relaxation of the bloc's fiscal rules because the national plans weren't concrete enough. --With assistance from Jorge Valero, Michal Kubala, Marton Eder and Harumi Ichikura. Why Apple Still Hasn't Cracked AI Microsoft's CEO on How AI Will Remake Every Company, Including His Cartoon Network's Last Gasp DeepSeek's 'Tech Madman' Founder Is Threatening US Dominance in AI Race As Nuclear Power Makes a Comeback, South Korea Emerges a Winner ©2025 Bloomberg L.P.
Bloomberg
03-05-2025
- Business
- Bloomberg
ECB's Makhlouf Says Price Risks Less Clear in Medium-Term Than Near
The eventual effect on euro-zone inflation of US tariffs and potential counter measures is harder to predict beyond the short term, according to European Central Bank Governing Council Member Gabriel Makhlouf. The tense global trade situation is boosting the euro, while weighing on business confidence and tightening financial conditions, the Irish official said Wednesday in a speech in Dublin.
Irish Times
30-04-2025
- Business
- Irish Times
Euro-zone growth unexpectedly quickens but trade hit still ahead
The euro-area economy grew more than expected at the start of the year, though is yet to feel the full force of US president Donald Trump's tariffs. First-quarter gross domestic product (GDP) jumped 0.4 per cent from the previous three months – double the previous period's gain – Eurostat said on Wednesday. Analysts had estimated a 0.2 per cent increase. The outcome means the 20-nation bloc has boosted output for five consecutive quarters, with its biggest two members, Germany and France, both returning to growth. Looking ahead, however, business surveys suggest a weakening – mainly due to confidence-sapping uncertainty over the US's intentions, compounded by the actual impact of the tariffs themselves. European Central Bank chief economist Philip Lane said last week that trade tensions are unlikely to result in a recession for the currency bloc, but acknowledged that expansion would be lower than previously hoped. READ MORE He and his colleagues are weighing further interest-rate cuts after a seventh reduction in mid-April, with some expecting Trump's levies to inflict lasting damage on the economy. Most remain confident inflation will sustainably return to the 2 per cent target this year. Germany and France saw GDP rise by 0.2 per cent and 0.1 per cent in the first quarter – in line with expectations. Italy saw a bigger-than-anticipated increase of 0.3 per cent. There were upbeat numbers across the euro zone this week: Estimates for Spain, the Netherlands, Belgium, Austria and Finland put GDP between 0.1 per cent and 0.6 per cent higher. Ireland's reading – published on Tuesday – jumped 3.2 per cent. But such assessments of Europe's economic health offer little insight into the consequences of the US tariffs, the bulk of which were only announced on April 2. Uncertainty abounds, with many of the levies now paused pending the outcome of talks. Separate figures showed how France's sluggish economy is already dragging down inflation, which eased to 0.8 per cent in April from 0.9 per cent the previous month. That's the lowest reading since February 2021 and will support calls for more reductions in ECB rates. Data due Friday are expected to show euro-zone prices advanced 2.1 per cent from a year ago in April – down slightly from the previous month. But an underlying measure that strips out volatile elements such as energy is predicted to tick up to 2.5 per cent. For Germany, the positive GDP number is a plus for incoming Chancellor Friedrich Merz after the IMF predicted Europe's largest economy would stagnate this year. Bundesbank President Joachim Nagel has even warned of a third straight year of contraction due to the fallout from Trump's trade policies, such as levies on cars. Germany has been suffering for several years from flimsy global demand, the cut-off of Russian energy supplies, over-regulation and a dearth of skilled workers. There's hope longer term, though, thanks to plans by the new government to spend hundreds of millions of euros on beefing up defence and infrastructure. In France, upheaval caused by the US's trade threats and U-turns has led the government to cut this year's growth forecast to 0.7 per cent from 0.9 per cent. With a weaker economy, it's also introduced more spending cuts in an effort to rein in the budget deficit. The country was already disrupted by a political crisis that delayed the implementation of fiscal measures for 2025 and raised uncertainty over possible tax increases. Wednesday's numbers for the January-March period revealed a decline in investment from businesses, households and the public sector, as well as a 0.7 per cent drop in exports. Even so, Finance Minister Eric Lombard said the economy is on track to meet the growth forecast contained in this year's budget. 'We're in line to reach our objective of 0.7 per cent,' he told Sud Radio on Wednesday. 'Investment and earnings publications are pointing in the right direction.' – Bloomberg
