ECB to cut rates by 25 basis points on December 12; at least four more likely in 2025

The European Central Bank will cut 25 basis points (bps) from its deposit rate on December 12, according to all but two of the 75 economists surveyed by Reuters, and at least 100 bps more next year as the economy slows and Fears about US tariffs rise. .

For now, the ECB is unlikely to react to the intensifying political turmoil in Europe: the French government collapsed as expected on Wednesday.
US President-elect Donald Trump's proposed tariffs, and whether they trigger a broader trade war, raise more questions for ECB policy next year.

Most ECB watchers have kept their views on rates, including forecasts for the end of 2025, unchanged from a survey last month, while awaiting further developments before making any big changes.

All but two of 75 economists in the Dec. 2-5 Reuters poll predicted another 25 basis point cut next week, the fourth such move this year. The other two expected a 50 bp cut.

“A 25 basis point move remains our base, and comments from most Governing Council members appear to support such a move as well. Even in the case of a 25 basis point cut, the large uncertainties involved in the outlook “They will probably keep the overall message quite soft and open-minded,” said Jan von Gerich, chief analyst at Nordea.

“Trump's ability to increase uncertainty in the euro zone is great… (and) the fact that both Germany and France lack a strong government with much political influence makes it very difficult for Europe to make quick and effective decisions.” well defined.”

There has been some speculation in markets recently about a move larger than half a point, but comments from ECB officials suggest that is unlikely.

“As the data currently stands, I think a reduction of 0.25 percentage points, no more, is conceivable,” Robert Holzmann, one of the most hawkish members of the Governing Council, said earlier this week.

An 80% majority of respondents, 60 out of 75, predicted two more deposit rate cuts next quarter, up from around 70% in November. Just over half, aged 39, predicted another two-quarter point reductions in the second quarter, bringing the rate to 2.00%.

A majority of more than 75% of economists expected interest rates of 2.00% or lower by the end of 2025, up from around 70% in November and around 60% in October, suggesting risks are tilting made more cuts than less.

Interest rate futures are pricing in more than 150 basis points of ECB rate cuts by the end of 2025, double what is priced in for the US Federal Reserve, meaning an already retreating euro could continue weak in the short term, another Reuters poll showed.

Trade threat trumps domestic politics

An overwhelming majority of the same panel of economists surveyed last month said Trump's tariffs would significantly hurt the European economy in the coming years.

“We materially lowered our 2025 growth forecast as a result of Trump's tariffs. We don't think Trump will be very sympathetic to the EU and will not hold back,” said James Rossiter, head of global macro strategy at TD Securities.

“If you look at the geopolitical risks for next year with France, Germany, Trump, all of these things are really tilted to the downside. If one of these or several of these geopolitical risks materialize to a large extent, then it's easy.” a scenario in which the ECB has to cut to 1.5%”.

The euro zone economy is forecast to grow 1.0% in 2025 and 1.2% in 2026, survey medians showed, down slightly from last month.

Inflation, which stood at 2.3% in November, is expected to fall back to the 2% target in the second quarter of 2025 and remain at that level at least until 2027, according to the median forecast of the surveys.

ECB staff will update their own economic forecasts at the December meeting.