The European Central Bank (ECB) was satisfied with the bare minimum on Thursday 12 September. As expected, it announced a reduction of its official interest rate from 3.75% to 3.5%, following a first reduction of the same magnitude in June, but it refuses to commit to further reductions. “We continue to depend on economic data [à venir]says Christine Lagarde, its president. We will decide this at each meeting, one after the other. The trend of interest rates is clear, i.e. downwards, but we do not commit ourselves to the frequency of reductions or their total amount. » Switching to Spanish, speaking to ECB Vice President Luis de Guindos, he adds: “What will be will be.” (“What must happen, will happen”).
This caution reflects the tensions in which the ECB is caught, between a sluggish economy and inflation that is not yet fully under control. The first part of the equation is the economic situation, which is particularly grim. The ECB’s growth forecast for the eurozone this year is now just 0.8%, slightly below its June forecast of 0.9%. But, above all, behind this figure lies a virtual stagnation of the domestic economy. “Private domestic demand has weakened, households are consuming less, businesses are reducing investment and real estate spending is falling”M. underlinesme Lagarde: The little growth that remains comes from foreign trade and government spending.
This near-suffocation is an unpleasant surprise. Three months ago, the ECB estimated that the rise in wages, by 4.3% in the second quarter, and the slowdown in inflation, now at 2.2%, would allow households to regain some of their purchasing power. It therefore anticipated a gradual recovery in consumption. This did not happen.
It’s just a postponement, says M.me Lagarde: “We believe the recovery will strengthen over time.” The monetary institution is betting on slightly higher growth in 2025, at 1.3% in the euro area. “One might wonder whether the ECB is being too cautious, given that it is not benefiting from the same growth as in the United States and that inflation is determined by global factors.”worries Christophe Boucher, investment director at ABN AMRO Investment Solutions.
A paradoxical situation
The problem, as seen from Frankfurt, is that inflation is not yet fully under control. True, price increases in August (year-on-year) were 2.2%, almost exactly the official target of 2%. But this figure hides two very different realities. On the one hand, goods prices are stagnating and energy prices are falling. But on the other hand, service prices continue to rise, up to 4.2% in August, compared with 4% in July.me Lagarde particularly highlights the sharp rise in prices for tour operators and insurance. For the ECB, whose sole mandate is to control inflation at 2%, these tensions remain too uncomfortable for it to act quickly and reduce its interest rates.
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