ECB lowered deposit rate by 25bps to 2.00% as widely expected. The central bank cited “exceptional uncertainty,” and its commitment to a data-dependent, meeting-by-meeting approach, refraining from offering forward guidance on the future path of interest rates.
In the updated economic projections, ECB now expects headline inflation to average 2.0% in 2025 and 1.6% in 2026—down 0.3 percentage points from March’s forecast. Headline inflation would then return to target at 2.0% in 2027. The revision was largely due to lower energy prices and a stronger Euro.
Core inflation is expected to ease to 2.4% in 2025 and 1.9% in both 2026 and 2027, broadly unchanged from previous forecasts.
On growth, ECB projects real GDP to expand by 0.9% in 2025, 1.1% in 2026, and 1.3% in 2027. While the 2025 GDP forecast remains unchanged due to a strong first quarter, ECB acknowledged that the remainder of the year looks weaker, in part due to trade-related uncertainty.
Weak global demand and potential retaliation to US tariffs could continue to drag on exports and business investment. However, rising public investment, particularly in defense and infrastructure, is expected to lend some support to growth in the medium term.
