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

Key Expectations for the Meeting
1. Rate Cuts and Future Projections

December Cut: The deposit rate is likely to drop to 3%, marking the start of a broader easing cycle.
Future Cuts: UBS predicts further reductions at meetings in January, March, April, and June, with rates reaching a neutral level of 2% by mid-2025.
Resilient Labor Markets: Gradual rate adjustments reflect expectations of steady labor markets, where wage growth is expected to decline slowly.

However, if labor markets weaken or wage growth slows significantly, UBS notes the ECB might accelerate rate cuts or reduce rates below the neutral level.

2. Revised Economic Projections

Inflation:

2024 Forecast: Slightly revised down to 2.4%.
2026 Forecast: Expected to increase to 2.0%, maintaining alignment with the ECB’s inflation goal.

GDP Growth:

Subdued Outlook: Projections for 2025 remain modest, with a slight uptick predicted in 2026 due to improved technical assumptions.

Additionally, the ECB will introduce its 2027 forecasts, offering a longer-term view of economic trends.

3. Forward Guidance and Policy Shifts
The ECB’s forward guidance is anticipated to emphasize a data-dependent approach, signaling a pivot from its restrictive tone. Analysts expect the central bank to move away from language such as maintaining rates at “sufficiently restrictive” levels, reflecting growing confidence in managing inflation.

Market Implications
The ECB’s actions underscore the delicate balance of combating inflation while supporting economic stability. A resilient labor market and controlled wage growth will be critical to sustaining this approach. The meeting outcomes will also guide the Eurozone’s economic trajectory into 2025 and beyond.
For deeper insights into European sector performance or broader macroeconomic data, explore Sector Historical Overviews or Key Metrics.
Are there specific industries or stocks you’d like analyzed in light of the ECB’s forthcoming decisions?