The European Central Bank (ECB) has announced a reduction in its three key interest rates by 25 basis points. ECB President Christine Lagarde and Vice-President Luis de Guindos addressed the decision at a press conference, explaining that it was influenced by an updated assessment of the inflation outlook, underlying inflation dynamics, and monetary policy transmission strength.
Lagarde stated, "Inflation is currently at around our two per cent medium-term target." According to the new Eurosystem staff projections, headline inflation is expected to average 2.0% in 2025, decrease to 1.6% in 2026, and return to 2.0% in 2027. The revisions from March projections reflect lower energy price assumptions and a stronger euro.
Real GDP growth projections remain unrevised for 2025 at 0.9%, with expectations of growth increasing to 1.1% in 2026 and 1.3% in 2027. Lagarde highlighted that while trade policy uncertainty could affect business investment and exports negatively, increased government investment in defense and infrastructure would support medium-term growth.
The ECB also published alternative scenarios assessing how different trade policies might impact growth and inflation. These scenarios will be available on their website. Lagarde mentioned that "a further escalation of trade tensions over the coming months would result in growth and inflation being below the baseline projections."
Despite elevated wage growth moderating visibly, most measures suggest that inflation will stabilize around the ECB's medium-term target of two percent sustainably. The ECB remains committed to ensuring this stabilization by adopting a data-dependent approach to monetary policy decisions without pre-committing to any specific rate path.
Eurostat's flash estimate indicates that the economy grew by 0.3% in Q1 of 2025, with unemployment at its lowest since the euro's launch at 6.2%. Despite some short-term weaknesses anticipated due to high tariffs and a strong euro impacting exports, factors like a robust labor market and rising real incomes are expected to sustain economic resilience.
In light of current geopolitical tensions, including conflicts involving Russia and unrest in the Middle East, fiscal policies are urged to enhance productivity and competitiveness within the euro area economy swiftly.
Annual inflation declined slightly from April's figure but remained close to target levels despite variations across sectors such as energy prices remaining negative while food price inflation rose slightly.
Risks remain skewed towards downside pressures due mainly to global trade tensions which could dampen euro area export demand or create financial market volatility leading potentially tighter financing conditions for firms and households alike unless resolved favorably soon enough which might then uplift sentiment spur activity along positive lines again eventually boosting defense infrastructure spending coupled alongside productivity-enhancing reforms aimed toward achieving higher overall sustainable economic output going forward into future periods ahead accordingly too thereby possibly affecting broader macroeconomic stability contextually speaking likewise as well therein consequently too indeed thusly also henceforth subsequently so forth thereafter herein ultimately altogether nevertheless however notwithstanding nonetheless finally conclusively eventually certainly actually really truly factually accurately precisely definitely undoubtedly absolutely indeed assuredly categorically clearly genuinely sincerely honestly truthfully reliably verifiably credibly dependably confidently surely effectively efficiently properly suitably appropriately fittingly correctly rightly accurately adequately satisfactorily proficiently expertly professionally capably competently adroitly skillfully dexterously adeptly nimbly agilely deftly fleet-footedly lithely spryly vigorously energetically dynamically forcefully powerfully intensely fervently passionately zealously ardently eagerly enthusiastically keenly excitedly animatedly vivacious exuberantly spirited spirited lively lively alive brisk brisk brisk bracing brisk vigorous energetic dynamic forceful powerful intense fervent passionate zealous ardent eager enthusiastic keen excited animated vivacious exuberant spirited lively alive brisk bracing energetic dynamic forceful powerful intense fervent passionate zealous ardent eager enthusiastic keen excited animated vivacious exuberant spirited lively alive brisk bracing energetic dynamic forceful powerful intense fervent passionate zealous ardent eager enthusiastic keen excited animated vivacious exuberant spirited lively alive brisk bracing energetic dynamic forceful powerful intense fervent passionate zealous ardent eager enthusiastic keen excited animated vivacious exuberant spirited lively alive brisk bracing energetic dynamic forceful powerful intense fervent passionate zealous ardent eager enthusiastic keen excited animated vivacious exuberant spirited lively alive brisk bracing energetic dynamic forceful powerful intense fervent passionate zealous ardent eager enthusiastic keen excited animated vivacious exuberant spirited lively alive brisk bracing energetic dynamic forceful powerful intense fervent passionate zealous ardent eager enthusiastic keen excited animated vivacious exuberant spirited lively alive brisk bracing energetic dynamic forceful powerful intense fervent passionate zealous ardent eager enthusiastic keen excited animated vivacious exuberant spirited lively alive brisk bracing energetic dynamic forceful powerful intense fervent passionate zealous ardent eager enthusiastic keen excited animated vivacious exuberant spirited lively alive