Scale of boost for consumers, housing and investment will depend on how low borrowing costs can go
The European Central Bank building in Frankfurt. The euro zone is set for a much-needed economic boost on Thursday when the ECB is expected to start cutting interest rates for the first time in almost five years. Photograph: Kirill Kudryavtsev/AFPThe euro zone is set for a much-needed economic boost on Thursday when the European Central Bank is expected to start cutting interest rates for the first time in almost five years.
“Lower rates do matter,” said Holger Schmieding, chief economist at German bank Berenberg. “Financial markets are well aware this is coming, but news that the ECB has started to cut rates could draw attention of households and businesses, and lift sentiment.” In Germany, house prices fell 10 per cent after the ECB started raising rates in 2022. But this year they are stabilising after 10-year mortgage rates dropped from almost 4 per cent last October to below 3.2 per cent, according to mortgage broker Dr Klein.
The euro zone’s unexpectedly strong labour market is also keeping price pressures high, with collective wage growth rising back to a record pace of 4.7 per cent in the first quarter, and unemployment in the bloc falling to a new low of 6.4 per cent in April. Even the ECB’s last rate cut in September 2019 was a reaction to weakening growth and inflation dropping below its 2 per cent target.