The European Central Bank (ECB) is expected to cut its deposit rate by 25 basis points on October 17 and again in December, according to more than 90% of economists polled by Reuters, who now see a faster decline in European zone inflation.
Only 12% of economists polled last month predicted a reduction in October. But most of them quickly changed their view to tapering in October and December after inflation in September fell below 2% and several members of the Governing Council, including ECB President Christine Lagarde, hinted that tapering would take place this month.
"The latest developments reinforce our confidence that inflation will return to target in due course," Lagarde said in a European Union parliamentary hearing last week. "We will take that into account in our upcoming monetary policy meeting in October."
For the past six months, economists had predicted three 25-basis-point deposit rate cuts this year, but now expect four cuts.
More than 90% of economists, 70 out of 75, said in a Reuters poll of October 2-8 that they expected the ECB to cut the deposit rate for a second consecutive meeting by 25 basis points next week, to 3.25%. Only five members predicted no change. Last month, only about 12% of economists, or nine out of 77, predicted a reduction in October.
The ECB central bank is expected to cut interest rates again to 3.00% in December, according to 68 out of 75 economists, in line with market expectations.
More than 55% of economists, 41 out of 72, predict the ECB will cut rates twice in the first quarter of next year, to 2.50%. The ECB central bank is expected to cut rates twice more at the end of next year, based on the survey.
Inflation in the common currency bloc, which fell to 1.8% last month, will pick up slightly and reach the ECB's 2% target next quarter and remain around that level until at least 2027, according to the survey. Economists last month expected inflation to reach 2% by the end of 2025.
However, core inflation will remain high this quarter and average 2.7%, the same as in September, before slowing gradually next year.
Although the recent PMI shows an economic slowdown, the economy of the European zone is expected to grow at a good rate throughout the next year.
The economy is expected to grow 0.2% this quarter, in line with the Q2 rate, and average growth of 0.7% this year, based on the survey, before expanding by 1.2% in 2025 and 1.4% in 2026.
However, growth in Germany, Europe's largest economy, stalled last quarter after contracting 0.1% in Q2 and will expand by 0.1% this quarter. It is expected to grow by 0.8% and 1.3% in 2025 and 2026, respectively.
