(Bloomberg) -- The euro-area economy’s sub-par performance is convincing the European Central Bank that it can further loosen the shackles on growth by lowering interest rates for a fourth straight meeting this week.
Most Read from Bloomberg
-
Billionaire Developer Caruso Slams LA Leadership Over Wildfires
-
How Sanctuary Cities Are Preparing for Another Showdown With Trump
-
Hoboken PATH Station Will Close for Almost a Month on Jan. 30
Data due Thursday, hours before policymakers in Frankfurt announce their decision on borrowing costs, will probably show gross domestic product rose by just 0.1% in the fourth quarter, down from 0.4% in the third, according to a Bloomberg poll.
Business surveys released last week by S&P Global generated some hope that a small revival may be feasible. But officials, increasingly confident that inflation is headed back to 2%, won’t be deterred — particularly as uncertainty, not least from the return of Donald Trump as US president, casts a shadow over firms and households.
“The risks to the euro-area economy are currently on the growth side, rather than inflation,” said Jari Stehn, chief European economist at Goldman Sachs. “The ECB can and should cut interest rates further to support economic activity.”
Drilling into the bloc’s 20 member states, Germany and France are largely responsible for the weakness as both navigate political upheaval. Preliminary German numbers this month estimated a fourth-quarter contraction of 0.1%. France probably stagnated.
Data on Monday underscored the muted outlook for Germany. An expectations index by the Ifo institute unexpectedly slipped, reflecting uncertainty ahead of the Feb. 23 federal election and Trump’s return to the White House.
Elsewhere, Italy may register growth of 0.2%, while Spain — the region’s standout performer — is likely to have expanded by 0.6% after notching 0.8% in the third quarter.
Members of the ECB’s Governing Council, speaking in Davos and elsewhere last week, firmed up market bets that at least two more consecutive cuts in the deposit rate from its current level of 3% will materialize this week and in March. Analysts in a Bloomberg survey are also aligned on that prospect.
One justification for expectations of monetary loosening is that, at current levels, borrowing costs continue to restrain economic activity. With confidence low and inflation poised to moderate further, this approach no longer seems necessary.
“The outlook for 2025 growth is lackluster, but remains in positive territory — the concern is on competitiveness,” said Michala Marcussen, group chief economist at Societe Generale. “Given the present stance of the economy, a pace of 25 basis points per meeting seems appropriate.”