Due to the tariff policies implemented by Trump on global trade partners, the economic outlook for the Eurozone is filled with uncertainty, and market expectations for ECB policy have shifted significantly. According to market data, the probability of the ECB cutting rates on April 17th has jumped from 70% to 90%, and it is expected to cut rates two to three more times within the year. Analysts state that Trump's tariff policies have triggered concerns about deflation in the Eurozone, and the challenge for investors and policymakers has shifted from "whether to cut rates" to "whether the rate cut will be sufficient."
The ECB has already cut rates five times consecutively, and the market now expects that the ECB may cut rates again in April and June. Pictet Wealth Management believes that rate cuts in April and June have become almost unavoidable, and any other decision could result in catastrophic consequences for the economy. Research from the Cologne Institute for Economic Research suggests that the tariffs imposed by Trump on EU goods could lead to losses of up to 750 billion euros for the Eurozone during Trump's four-year term, far exceeding any potential inflation risks.
As global economic growth slows, particularly with the impact of the trade war on the Eurozone, market sentiment about Europe's economic prospects is becoming increasingly pessimistic. Amundi Asset Management points out that Europe's growth issue has become one of the key problems for the global economy, which might prompt the ECB to continue implementing accommodative policies. Ducrozet notes that the key issue is whether the ECB will be forced to implement more significant rate cuts due to deteriorating economic prospects.
Additionally, the March inflation rate in the Eurozone has fallen to an annual rate of 2.2%, close to the ECB's 2% target. Barclays Bank predicts that the ECB might significantly cut rates to 1.25% by October and might restart unconventional monetary policies such as bond purchases in the second half of the year.
Meanwhile, the UK is also facing similar pressure to cut rates. Despite strong consumer price and wage growth, the market has almost fully priced in a rate cut by the Bank of England in May. Analysts suggest that the global economic slowdown could affect UK economic growth and lead to deflationary effects, with the Bank of England expected to continue cutting rates quarterly for the remainder of the year.
