Fresh data released on Friday shows that growth and inflation in the euro zone remain on a stable and benign path. This supports economists who believe the European Central Bank will not deliver more rate cuts anytime soon.
Economic growth has held up better than expected despite global trade uncertainty. A strong labour market has helped cushion the impact. At the same time, inflation has stayed close to the ECB’s 2% target for most of the year, matching earlier projections.
National figures continue to show wide differences across the region. Spain is still expanding strongly, while Germany struggles to break free from years of stagnation. Even so, the overall picture points to steady inflation and slow but ongoing economic growth.
Big differences across the euro zone
According to Mateusz Urban of Oxford Economics, none of the latest data releases indicate that growth or inflation will move away from the ECB’s main outlook in the short term.
Inflation was unchanged at 0.8% in France. It rose to 2.6% in Germany, eased slightly to 3.1% in Spain, and slipped to 1.1% in Italy. When combined with data from smaller member states, inflation for the entire 20-country bloc remained stable at 2.1%. This is unlikely to affect the ECB’s meeting on December 18.
The central bank’s view is also supported by its consumer expectations survey. The survey suggests that households see price growth staying roughly the same over the next three and five years. Income and spending expectations also remain broadly steady.
Financial markets agree. They see almost no chance of a rate change next month and assign only a one-in-three possibility of one final cut by mid-2025.
Germany’s ongoing challenges
New figures on spending and unemployment in Germany remain weak but still suggest that the economy is stable or growing only slightly. Germany has been stuck in stagnation for three years. High production costs and stronger competition from China are pushing down industrial exports, which continues to weigh on consumer confidence.
Retail sales fell 0.3% in October, signalling soft demand. However, the labour market stayed resilient, with unemployment mostly unchanged in November.
ING economist Carsten Brzeski said the labour market avoided a worst-case scenario. He noted that the latest numbers may ease political pressure, although a clear turnaround is still not in sight.
The ongoing rate-cut debate
While the ECB is expected to keep rates unchanged in December, discussions about further easing may return next year. Falling energy prices could push inflation below target in 2026, raising concerns among some policymakers. They fear that persistently low inflation could weaken expectations and keep price growth subdued.
Even so, the ECB typically looks beyond short-term energy price swings and focuses on medium-term trends. Chief economist Philip Lane recently warned that underlying price pressures, excluding energy, remain too high.
The ECB says it is keeping the option of future cuts open. But it has signalled no urgency to change its stance. Some policymakers now argue that the bank may already be finished cutting rates after reducing the deposit rate by half in the year to June.
