ECB cuts interest rates again: What does that mean for our economy?

ECB cuts interest rates again: What does that mean for our economy?

On December 12, 2024, the European Central Bank (ECB) decided to lower interest rates in the euro area again, by 0.25 percentage points to 3.00 percent. This marks the fourth rate cut this year, as stated daily news reported. The ECB's decision comes against the backdrop of a gloomy economic situation and growing inflation concerns in the eurozone. ECB President Christine Lagarde and her colleagues face a difficult situation as pressure on the economy increases and the inflation rate is still above the target of 2.0 percent despite the cuts.

The current inflation rate is 2.3 percent, and so-called core inflation, which excludes volatile energy and food prices, remains stubbornly high at 2.7 percent. This creates uncertainty regarding future price developments, particularly with regard to the possible impact of the new US administration's trade policies and the threat of tariffs, such as FAZ highlights. However, the ECB is optimistic that inflation can stabilize sustainably while facing concerns about a resurgence of economic uncertainties.

Economic challenges

Concerns about continued economic weakness have increased and eurozone growth forecasts have been revised downwards. The ECB expects modest growth of just 0.7 percent in 2024, compared to the more optimistic levels previously forecast. Experts, including Sebastian Dullien from the IMK Institute, warn that interest rates are being kept at a level that could put additional strain on the economy. They are almost unanimously calling for further interest rate cuts next year to support the ailing economy.