The European Central Bank (ECB) recently cut interest rates again, marking the eighth rate cut since June 2024. On June 5th, the ECB decided to cut the three key interest rates in the Eurozone by 25 basis points each. The deposit facility rate, the main refinancing rate, and the marginal lending rate were reduced to 2.00%, 2.15%, and 2.40%, respectively.
ECB President Christine Lagarde stated that the rate cut was based on a comprehensive assessment of the inflation outlook, the dynamics of underlying inflation, and the strength of monetary policy transmission. According to preliminary statistics from Eurostat, the Eurozone’s inflation rate in May was 1.9% on an annual basis, lower than the ECB’s 2% target. The ECB predicts that the overall inflation rate in the Eurozone will be 2.0% in 2025, 1.6% in 2026, and 2.0% in 2027.
Some analysts believe that the ECB’s decision to continue cutting interest rates is primarily due to the belief that the inflation target has been basically achieved and is related to the severe economic situation in Europe. Before the ECB cut interest rates, the European Commission released the Spring 2025 Economic Outlook report, significantly lowering the economic growth forecast.
The report predicts that the real GDP of the European Union will grow by 1.1% in 2025, and that of the Eurozone by 0.9%. Germany, the largest economy in the European Union, is not optimistic, with its central bank predicting that Germany’s economic growth will come to a standstill this year. Industrial output and exports in Germany declined in April, with industrial output dropping by 1.4% month-on-month and exports decreasing by 1.7% month-on-month.
Lagarde views the interest rate level after the cut as “in a favorable position,” but the inflation outlook and economic development of the Eurozone still face great uncertainty, mainly due to unpredictable changes in global trade policies. However, the ECB believes that a strong labor market, increased real income, and improved financing conditions will help the European economy withstand external shocks. To boost the economy, the European Union has launched many plans, including a 750 billion euro “Recovery Fund” and an 800 billion euro “Rearm Europe” plan.
These plans will stimulate infrastructure construction and the development of the defense industry in Europe. German Chancellor Metz has made economic development his top governance goal, with the German government implementing a corporate tax incentive package worth approximately 46 billion euros to alleviate the burden on enterprises and stimulate the economy.
However, the continuously intensified tariff measures of the United States have cast a huge shadow over the economic outlook of the European Union. The imposition of tariffs by the United States will not only hit the exports of European countries but also lead to the outflow of some industries and undermine the overall competitiveness of the European Union. At present, the United States has raised tariffs on steel and aluminum products to 50%, but the trade negotiations between the United States and Europe still have no result.
Some media analysis points out that the ECB’s interest rate cut and large-scale investment plans have a stimulating effect on the economy in the short term, but the expansion of spending may lead to increased fiscal pressure. In the long run, for Europe to enhance its competitiveness and achieve rapid growth, it still needs to cultivate emerging industries and make efforts in areas such as greenness, digitalization, and intelligence.
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