The expectation of interest rate cuts by the European Central Bank is facing a key variable - uncertainty in US trade policy. Trump's recent threat to impose a 25% tariff on European cars and other goods could further drag down the already weak eurozone economy.

The economic outlook for the coming months may undergo significant changes. The Trump administration's tariff policies may be more aggressive than we currently assume. "- Bill Diviney, Senior Economist at ABN Amro

The market generally believes that if the EU is forced to take countermeasures, the growth of the eurozone may be hit even harder. More than half of the surveyed economists view US policies as a 'significant' risk facing Europe.

Divergent paths for interest rate cuts and divergent market expectations

Although economists generally expect the Eurozone economy to gradually recover by 2025 and inflation to approach the European Central Bank's 2% target, there are clear differences in the path of interest rate cuts.

Most dovish prediction: Some analysts predict that the European Central Bank will continue to significantly lower interest rates, and may even lower deposit rates to 1% in early 2026.

Most hawkish prediction: Another group of economists believe that after the March 6th interest rate cut to 2.5%, the European Central Bank may not take further action to prevent inflation from rebounding.

The European Central Bank should be more cautious after cutting interest rates in March to avoid cutting rates too quickly or excessively, especially when core inflation remains stubborn and Trump's trade policies may lead to unexpected inflation increases. "- Dennis Shen, Scope Ratings economist

Internal decision-makers are currently divided, and policy direction remains uncertain

There are also different voices within the decision-making level of the European Central Bank regarding the future path of interest rate cuts.

Supporting further interest rate cuts: European Central Bank Executive Piero Cipollone believes that the central bank should continue to cut interest rates to compensate for the tightening effects of past stimulus policy exits.

Beware of excessive interest rate cuts: Another executive member, Isabel Schnabel, warned that the European Central Bank should avoid cutting interest rates too quickly and prevent excessive easing from causing inflation to rebound.

Weak economic growth, but inflation remains sticky

Although inflation in the eurozone is falling, economic growth remains sluggish, especially in the two core economies - Germany and France - which both experienced economic contraction in the fourth quarter of 2024.

Germany: Export decline, weak consumption growth. France: Decreased investment and insufficient economic momentum.

The European Central Bank emphasized in its January meeting minutes that economic growth risks still lean towards a downward trend, while inflationary pressures are easing, which opens up space for interest rate cuts. However, market concerns about a rebound in inflation remain.

Market attention on March meeting signal, European Central Bank may adjust policy statement

As the uncertainty of interest rate cut expectations increases, the market is paying attention to the European Central Bank's policy statement after its March 6 meeting, especially whether it will adjust the statement that "monetary policy remains restrictive".

About two-thirds of the surveyed economists expect that the European Central Bank may remove the phrase 'policy restrictive', but will not directly state that policy has shifted to a 'neutral' stance to avoid market interpretation that interest rate cuts are approaching the bottom.

More than 90% of analysts expect that the European Central Bank will not provide clear forward guidance, but will continue to emphasize a "data dependent" decision-making model.

Finding a balance between different positions within the management committee will be a major challenge for European Central Bank President Lagarde. Therefore, she may continue to adopt a 'data dependency' strategy and not make premature commitments. "- Jussi Hiljanen, Head of Macro and Fixed Income Research at Swedish Bank (SEB)

Editor's viewpoint:

The possibility of the European Central Bank cutting interest rates in the short term is high, but Trump's trade policy may become a key factor in determining the pace of interest rate cuts.

If the trade friction between the United States and Europe escalates, European economic growth may be more impacted, prompting the European Central Bank to accelerate the pace of interest rate cuts; On the contrary, if the economic recovery in the eurozone exceeds expectations or if inflation stickiness exceeds estimates, the European Central Bank may be more cautious. Therefore, the market needs to closely monitor economic data, inflation trends, and the latest developments in US European trade relations in the coming months.