The European Central Bank (ECB) activate alarms for the economy. The Eurobank has stepped on the accelerator in cutting interest rates, with its second consecutive reduction and third in the yearin the face of price correction and the economic slowdown in Germany and France, which threatens to slow investment and consumption. The risk of recession weighs more now in Frankfurt than the geopolitical dangers due to the war between Israel and Iran and the impact on oil prices.
Germany and France flew over indirectly in yesterday’s ECB speech. Already in the statement to justify the reduction of the official price of money from 3.5% to 3.25%, which was unanimous within the governing council, pointed to the weakness of Europe’s two engines.
“The inflation outlook is also affected by recent downward surprises in economic activity indicators,” the central bank said. And at the press conference, Christine Lagarde reinforced her pessimism: “Economic activity is being lower than expected.” This stoppage helps the central bank to control pricesso it opens the door to more discounts.
“Have we broken the neck of inflation? Not yet. But are we breaking the neck of inflation? Yes, I think so,” Christine Lagarde, president of the ECB.
The ECB is reluctant to give a clear roadmap to investors on monetary policy. Although analysts already assume another rate cut in December. “New cut from an ECB that will become more pessimistic,” titled its report Generali Investments after Lagarde’s statements.
The multi-manager platform of the largest Italian insurer interprets that the central bank detects that the recovery of the economy “is lagging behind” expectations, especially due to political uncertainty in Germany and France, and its impact on growth in the area euro. In the German country, recession in 2024 is already taken for granted, while the French Government is immersed in an adjustment plan of 40,000 million of euros to correct the gap in public accounts. France, furthermore, will grow less than expected in the last quarter of this year, despite the boost from the Olympic Games.
clear path
From BlackRock, PIMCO and the Deutsche Bank manager They also expect another reduction in December. “ANDThe way is clear for further significant rate cuts in the coming monthsespecially since the debate on the weakness of the economy will gain strength between now and the next ECB meeting in December,” analysts from Deutsche Bank’s management company consider.
“If rates had not been lowered, the ECB would have plunged the European economy into recession. Now let’s see if we avoid it,” warns a senior banking executive who requests anonymity. In the end, the ECB prefers to trust that the war between Israel and Iran will not escalate into a global conflict. Or at least, according to financial sources, he is betting that the Israeli response to the attacks by the Tehran regime is limited to military objectives and is not directed against oil infrastructure. This last possibility had caused an increase in the price of the Brent barrela reference in Europe, which put price correction at risk.
“Have we broken the neck of inflation? Not yet. But are we breaking the neck of inflation? Yes, I think so. It is not completely broken yet, but we are close to achieving it,” warned the president of the ECB. The euro zone CPI closed September at 1.8%, below the sacrosanct objective of 2% for the first time in three years. Even There are countries, such as Spain, in which inflation is below or at 1.5%. For Pimco, the largest fixed income manager, the macroeconomic context “is also somewhat weaker than expected,” according to its estimates. that rates end up below 2% in 2025.
Towards the neutral level
The drums of recession will accelerate the progress of the ECB, as the majority of the market expects. It is expected that the types reach a neutral levelin which they do not impact economic activity, of around 2% in mid-2025. To do this, the ECB would have to lower the rates “meeting by meeting”, as anticipated Bank of Americawhich even foresees that the official price of money will close at 1.5% next year.
“Only an even sharper economic deterioration would prompt the ECB to increase the size of the next cuts and rush to bring rates below the neutral level,” analysts at BlackRock. For now, this is a warning, but it will depend on whether Europe’s economic engines are reactivated in the coming months.
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