European Central Bank cuts interest rates after eurozone growth stalls | European Central Bank

The European Central Bank has cut interest rates to ease the cost of borrowing across the 20-member eurozone as growth stagnates in the region.

The central bank cut rates by a quarter of a point to 2.75%, in line with expectations, after a run of bad news showing the bloc’s largest nations – France and Germany – suffering a dramatic slowdown in economic growth.

The central bank said that inflation remained high in many economies, “mostly because wages and prices in certain sectors are still adjusting to the past inflation surge with a substantial delay”.

The latest official data showed the eurozone economy failed to grow in the final three months of 2024. However, the release added that wages growth across the single currency area was moderating, and many companies were absorbing extra costs rather than passing them on to consumers.

Financial markets anticipate further cuts, with another one percentage point of reductions priced in for the rest of this year.

A survey of businesses across the eurozone found most economies experienced a weak end to 2024. A flash estimate found the euro bloc barely expanded in the last quarter of 2024, held back by a 0.2% decline in Germany. France’s economy shrank by 0.1% in the quarter, while Italy’s economy recorded zero growth.

Carsten Brzeski, the global head of macro at ING, said growth in the euro area economy was “sluggish” and the interest rate cut was justified.

However, he said the ECB would need to go further to reverse a poor run of economic data. “At 2.75%, the deposit interest rate is still restrictive – too restrictive for the eurozone economy’s current weak state,” he said.

Brzeski added that recent increases in global interest rates, which have increased the borrowing costs of eurozone governments, would weigh on public spending and restrict growth.

“Even if some argue that monetary policy can do very little to solve structural issues, political instability and uncertainty in many countries will force the ECB to continue doing the heavy lifting.”