European Central Bank Raises Inflation Forecast Amid Economic Growth Concerns
The ECB projects an inflation increase for 2025, alongside a downward revision of growth estimates amid global uncertainties.
On March 6, 2025, the European Central Bank (ECB) published its updated economic forecasts following a 25 basis points reduction in interest rates.
The central bank indicated a revision of both inflation and growth rates, while acknowledging that the process of disinflation is still progressing.
Experts now anticipate that overall inflation will average 2.3% in 2025, 1.9% in 2026, and 2.0% in 2027, marking an upward revision of two-tenths of a percentage point for 2025. This change is attributed to increased dynamics in energy prices.
The ECB also projects that underlying inflation, which excludes energy and food prices, will average 2.2% in 2025, 2.0% in 2026, and 1.9% in 2027, figures in line with the previous projections made in December.
Most indicators for underlying inflation suggest that it will stabilize sustainably around the Governing Council's medium-term target of 2%.
However, the ECB noted that internal inflation remains high, primarily due to wages and prices in certain sectors still adjusting to the previous inflation surge with a significant lag.
Wages are reportedly growing at a moderated pace as expected, and corporate profits are partially cushioning the impact on inflation.
As for economic growth, the ECB has revised its forecasts downwards to 0.9% for 2025, 1.2% for 2026, and 1.3% for 2027. According to the latest available data from the third quarter of the previous year, the eurozone economy grew by 0.4%.
Weakness in growth is especially pronounced in Germany, which has experienced two consecutive years of recession.
The ECB's growth forecast for both 2025 and 2026 has been downgraded by two-tenths, attributed to a projected decline in exports and persistent weakness in investment, partly due to significant uncertainty surrounding trade policies and general economic policies.
The ECB has also referenced the potential impact of tariffs announced by former President Donald Trump since his inauguration in January 2025, noting that increased global trade frictions resulting from new tariffs could lead to higher import costs, consequently driving up inflation.
Currently, President Trump has threatened the EU with 25% tariffs on steel and aluminum set to take effect on March 12, along with additional measures planned for April 2, which may include reciprocal tariffs on VAT and digital services perceived as detrimental to U.S. businesses, as well as sector-specific agricultural tariffs.
Christine Lagarde, President of the ECB, stated during a post-announcement press conference that the EU's proposed investments in defense and infrastructure, responding to the evolving international situation, could stimulate GDP growth.
However, such investments are also expected to contribute to rising inflation due to increased aggregate demand.
The ECB particularly emphasized the current context of heightened uncertainty and confirmed its commitment to base future decisions on forthcoming data.
The central bank indicated a revision of both inflation and growth rates, while acknowledging that the process of disinflation is still progressing.
Experts now anticipate that overall inflation will average 2.3% in 2025, 1.9% in 2026, and 2.0% in 2027, marking an upward revision of two-tenths of a percentage point for 2025. This change is attributed to increased dynamics in energy prices.
The ECB also projects that underlying inflation, which excludes energy and food prices, will average 2.2% in 2025, 2.0% in 2026, and 1.9% in 2027, figures in line with the previous projections made in December.
Most indicators for underlying inflation suggest that it will stabilize sustainably around the Governing Council's medium-term target of 2%.
However, the ECB noted that internal inflation remains high, primarily due to wages and prices in certain sectors still adjusting to the previous inflation surge with a significant lag.
Wages are reportedly growing at a moderated pace as expected, and corporate profits are partially cushioning the impact on inflation.
As for economic growth, the ECB has revised its forecasts downwards to 0.9% for 2025, 1.2% for 2026, and 1.3% for 2027. According to the latest available data from the third quarter of the previous year, the eurozone economy grew by 0.4%.
Weakness in growth is especially pronounced in Germany, which has experienced two consecutive years of recession.
The ECB's growth forecast for both 2025 and 2026 has been downgraded by two-tenths, attributed to a projected decline in exports and persistent weakness in investment, partly due to significant uncertainty surrounding trade policies and general economic policies.
The ECB has also referenced the potential impact of tariffs announced by former President Donald Trump since his inauguration in January 2025, noting that increased global trade frictions resulting from new tariffs could lead to higher import costs, consequently driving up inflation.
Currently, President Trump has threatened the EU with 25% tariffs on steel and aluminum set to take effect on March 12, along with additional measures planned for April 2, which may include reciprocal tariffs on VAT and digital services perceived as detrimental to U.S. businesses, as well as sector-specific agricultural tariffs.
Christine Lagarde, President of the ECB, stated during a post-announcement press conference that the EU's proposed investments in defense and infrastructure, responding to the evolving international situation, could stimulate GDP growth.
However, such investments are also expected to contribute to rising inflation due to increased aggregate demand.
The ECB particularly emphasized the current context of heightened uncertainty and confirmed its commitment to base future decisions on forthcoming data.
Translation:
Translated by AI
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