Key Takeaways
- Piero Cipollone, a member of the European Central Bank's (ECB) Executive Board, stated that current economic data is delivering "mixed signals," contributing to an uncertain outlook for the Eurozone economy.
- The ECB recently paused its year-long series of rate cuts, holding the deposit rate steady at 2%, as it navigates persistent trade tensions and geopolitical instability.
- Uncertainty surrounding trade policy, particularly potential U.S. tariffs, is a significant challenge weighing on business sentiment and investment in the Eurozone.
European Central Bank Executive Board member Piero Cipollone has indicated that the current economic data presents "mixed signals," leading to an uncertain outlook for the Eurozone. This assessment comes as the ECB recently decided to hold its key interest rates steady, pausing a year-long cycle of rate cuts. The deposit rate remains at 2%.
The ECB's cautious stance is largely attributed to ongoing trade tensions and broader geopolitical instability. ECB President Christine Lagarde emphasized a "wait-and-see" approach, noting that while inflation is at its 2% target, the economic outlook remains fragile, influenced by trade friction, a strengthening euro, and increased fiscal spending. The Eurozone economy is holding up, but uncertainty, especially concerning tariffs, continues to impact investment.
Recent data has painted a somewhat sluggish picture, with weak loan demand and slow gains in private-sector activity. While the services sector has shown encouraging improvements, manufacturing activity has been volatile due to trade developments. New orders for manufacturing weakened in July, raising questions about the sustainability of any recovery, particularly with the uncertainty surrounding a potential trade deal with the U.S.
Despite the mixed signals, the ECB's June 2025 projections anticipate headline inflation to average 2.0% in 2025, 1.6% in 2026, and 2.0% in 2027. However, these projections were revised downwards compared to March 2025, primarily due to lower energy price assumptions and a stronger euro. The euro's 13% rally this year is also a concern, as it could exert downward pressure on inflation.
Market expectations for further rate cuts have been scaled back following the ECB's decision to hold rates. While some traders still anticipate one more cut this year, possibly by September or March, the central bank's data-dependent approach suggests flexibility in its future policy decisions. The European Commission projects the Eurozone economy to grow by 1% in 2025, up from 0.9% in 2024, supported by stable labor market conditions, robust income growth, and lower interest rates. However, elevated uncertainty from global trade tensions remains a downside risk to growth.
Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications.