The European Central Bank cut interest rates for a fifth time yesterday after official figures showed the eurozone economy stagnating, with Germany and France on the brink of recession.
ECB chief Christine Lagarde said that the single currency bloc was ‘set to remain weak in the near term’ as the bank’s benchmark rate was cut from 3 per cent to 2.75 per cent.
Germany, France and Italy, the zone’s three biggest powerhouses, have dragged the economy down.
And the eurozone faces further uncertainty as US President Donald Trump threatens tough tariffs.
The ECB’s cut is the fifth since June and markets expect two or three more this year as downturn fears outweigh worries about persistent inflation, which is 2.4 per cent.
Lagarde appeared to signal further moves, saying: ‘We know the direction of travel.’
Slowdown: ECB chief Christine Lagarde (pictured) said that the single currency bloc was ‘set to remain weak in the near term’
It comes a day after the US Federal Reserve paused its rate-cutting cycle, defying pressure from Trump.
The US economy is booming, with figures yesterday showing it grew by 2.8 per cent last year, suggesting it can afford to be more patient in cutting rates.
Meanwhile, the Bank of England is expected to cut rates by a quarter of a percentage point to 4.5 per cent when officials meet next week, after signs that UK growth turned flat at the end of last year.
Official figures yesterday showed that the eurozone experienced zero growth in the last quarter. For the year as a whole, it grew just 0.7 per cent.
The single currency bloc has been dragged down by Germany, its biggest economy, which is mired in an industrial crisis, cut off from cheap Russian energy and facing dwindling demand from China.
Germany shrank by 0.2 per cent last year and faces another tough year as elections loom. It yesterday slashed its growth outlook for 2025 from 1.1 per cent to 0.3 per cent.
France, also in political turmoil, shrank by 0.1 per cent in the fourth quarter but grew 1.1 per cent over 2024, boosted by the summer Olympics. Italy stagnated in the fourth quarter but was up by 0.5 per cent for the year.
Richard Carter, head of fixed interest research at Quilter Cheviot, said: ‘With economic growth flatlining, markets had anticipated that the ECB would continue its path of rate cuts.
‘The economy is in desperate need of stimulus, and the ECB will be hoping that this fifth interest rate cut will begin to make a difference.’
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