The European Central Bank (ECB) has reduced interest rates for the fourth time this year, simultaneously lowering its growth forecast for the eurozone amid political instability in its two largest economies, France and Germany.
Policymakers decreased the deposit rate from 3.25% to 3%, continuing the rate cuts that began in June when the deposit rate peaked at 4%.
The ECB announced that it anticipates “a slower economic recovery than in the September projections” for the eurozone. ECB President Christine Lagarde acknowledged that the single currency area is “losing momentum.”
Lagarde warned of “downside risks” to growth, as the ECB now projects the economy will expand by 0.7% this year and 1.1% in 2025, revised down from previous estimates of 1.3%. The growth forecast for 2026 has been adjusted to 1.4%, down from 1.5%, with an expected growth rate of 1.3% in 2027.
During a press conference in Frankfurt, Ms. Lagarde noted that the eurozone economy exceeded expectations in the third quarter. However, she added that companies are currently “holding back their investment spending due to weak demand” and an uncertain economic outlook.
In related political developments, Germany is scheduled to hold snap elections in February following the collapse of its coalition government. Meanwhile, France recently approved a no-confidence vote against its prime minister for the second consecutive time over disagreements concerning its deficit-reduction budget.
