The President of the European Central Bank (ECB) leaves no doubt and assures that interest rates “are well placed” above 2%, even if they are not static. These statements confirm the bottom of the currency’s reference rate, ending the cycle of declines. The organization’s Board of Directors made the decision unanimously in the heat of economic and inflation forecasts, which have increased in both cases. The activity forecasts for 2025, which improve by two tenths, to 1.4%, but also for inflation, rule out the possibility of initiating further reductions to stimulate the economy.
Lagarde highlighted the “resilience” shown by the euro zone economy, with an expansion of 0.3% in the third quarter, driven by increased consumption and investment. “The sectoral composition of growth was dominated by services, notably in the information and communication sector, while activity in industry and construction remained stable. “It is likely that this pattern of growth driven by services will continue in the short term,” he explained, to emphasize the “solidity” of the labor market, after unemployment closed the month of October close to its historic low, at 6.4%.
The Frankfurt-based organization believes that domestic demand will become the driving force for business expansion, while real incomes will continue to rise and the savings rate will gradually decline. “Business investment and substantial public spending on infrastructure and defense are expected to increasingly support the economy. However, the challenging global trade environment will likely continue to hamper euro zone growth this year and next,” he said.
In this context, the head of monetary policy for the euro zone declared that the fall in energy prices should ease the pressure on inflation, which will be below 2% in 2026 and 2027. Concretely, she forecasts a CPI of 1.8% and 1.9% respectively.
About The Author
