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December 8, 2024

ECB Meeting Preview: Anticipated Rate Cuts and Economic Adjustments

The European Central Bank (ECB) is poised to cut interest rates by 25 basis points to 3% during its meeting on December 12, 2024, according to a recent UBS report. This anticipated move aligns with the ECB’s objective of achieving inflation at its 2% target by early 2025.

Key Expectations for the Meeting

1. Rate Cuts and Future Projections

  • December Cut: The deposit rate is expected to drop to 3%, marking a beginning in a broader easing cycle.
  • Future Cuts: UBS forecasts further reductions at the January, March, April, and June meetings, targeting a neutral level of 2% by mid-2025.
  • Resilient Labor Markets: Gradual adjustments reflect expectations of steady labor markets, anticipating a slow decline in wage growth.

The ECB may expedite rate cuts if market conditions change significantly or if wage growth weakens sharply.

2. Revised Economic Projections

  • Inflation:
    • 2024 Forecast: Revised downward slightly to 2.4%.
    • 2026 Forecast: Expected to remain steady at 2.0%, in line with the ECB’s inflation objectives.
  • GDP Growth:
    • Subdued Outlook: Growth projections for 2025 remain modest, with a slight improvement forecast for 2026.

The ECB will also deliver its 2027 forecasts, providing insights into long-term economic trends.

3. Forward Guidance and Policy Shifts

The ECB is expected to adopt a data-driven approach, moving away from restrictive language, reflecting its increased confidence in managing inflation.

Market Implications

The ECB’s forthcoming actions illustrate the delicate balance of curbing inflation while upholding economic stability. A resilient labor market paired with controlled wage growth is essential to sustaining this approach, with outcomes from the meeting influencing the Eurozone’s economic trajectory into 2025 and beyond.

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