ECB’s Consumer Expectations Survey for March showed that consumers are raising their inflation views in a relatively measured manner rather than in a panic. Overall, the results present a slight inflationary concern on one side, but still subdued growth prospects on the other.

Median expectations for inflation over the next 12 months rose by 0.3% to 2.9%, the highest level since April 2024.

Looking further ahead, expectations for inflation three years out edged up by 0.1% to 2.5%, also hitting a one-year high.

Newly introduced five-year inflation expectations remained stable at 2.1%, suggesting longer-term expectations remain relatively anchored.

Uncertainty about the inflation outlook remained at its lowest level since January 2022.

On the broader economic front, the survey indicated that consumers’ income growth expectations stayed unchanged at a modest 1.0% over the next year, while expected nominal spending growth edged down to 3.4%.

Economic growth expectations remained weak, steady at -1.2% for the next 12 months.

Full ECB Consumer Expectation Survey results here.

ECB Executive Board member Piero Cipollone warned today that the recent surge in trade policy uncertainty poses a material risk to Eurozone growth. In a speech, he highlighted internal ECB research suggesting that rising uncertainty could trim Eurozone business investment by -1.1% in the first year, while real GDP growth could fall by about -0.2% in 2025-26.

Financial market volatility, elevated due to the global trade tensions, could further drag on growth. ECB staff estimate that the observed increase in volatility alone could shave an additional -0.2% off Eurozone GDP in 2025.

Cipollone emphasized that over the medium term, tariffs will have an “unambiguously recessionary effect” across both economies imposing and receiving restrictions, and noted that the ability of exchange rates to “absorb tariff shocks” appears to have diminished.

ECB’s analysis of fragmentation scenarios paints an even bleaker picture. In a mild East-West decoupling, global output could drop by nearly -2%. In a severe decoupling where trade between blocs halts entirely, global output could plunge by up to -9%.

Trade-dependent economies would bear the heaviest losses, with the EU facing a GDP decline of between -2.4% and -9.5% depending on the severity. Notably, the US itself could suffer a near -11% contraction in the most extreme case if it “imposed additional trade restrictions against western and neutral economies”.

While the growth impact of trade fragmentation is clear, the inflationary effects remain less certain. For the Eurozone, recessionary forces, stronger real interest rates, and Euro appreciation could generate a “disinflationary: trend in the near to medium term.

Full speech of ECB’s Cipollone here.

ECB Vice President Luis de Guindos told the European Parliament today that while the Eurozone economy likely managed modest growth in Q1, risks to the outlook have intensified.

He pointed to exceptional uncertainty stemming from new trade barriers, financial market tensions, and geopolitical instability, all of which could weigh on business investment and consumer spending in the months ahead.

“In this environment, consumers may become cautious about the future and hold back spending,” de Guindos added.

Separately, Finnish ECB Governing Council member Olli Rehn also flagged the growing headwinds, suggesting the central bank may need to cut interest rates below neutral levels and maintain maximum flexibility.

Rehn emphasized that underlying inflation pressures are easing and that the escalation of US trade tariffs is largely contributing to increased downside risks for Eurozone inflation.

French ECB Governing Council member Francois Villeroy de Galhau expressed confidence today that there is no imminent recession risk for either France or Europe, while inflation continues to decline.

Speaking to RTL Radio, Villeroy also reaffirmed that the ECB retains “a gradual margin for rate cuts”, despite global uncertainties.

Villeroy also issued a strong warning about the risks stemming from US trade policies. He criticized the administration’s protectionist stance, saying it was “playing against the US economy and unfortunately also against the world economy.”

He stressed that protectionism ultimately leads to “less growth and more inflation.”