In its June meeting, the European Central Bank (ECB) reduced key interest rates by 25 basis points, reflecting updated forecasts on inflation and economic conditions. The inflation outlook is close to the target of 2%, with expectations set at 2.0% in 2025 (a decrease from the previous forecast of 2.3%), 1.6% in 2026 (down from 1.9%), and returning to 2.0% in 2027. Core inflation, which excludes volatile elements such as energy and food, is anticipated to reach 2.4% in 2025 and then decline to 1.9% for 2026 and 2027.
GDP growth projections are set at 0.9% for 2025 and 1.1% for 2026 (slightly down from the earlier estimate of 1.2%), picking up to 1.3% in 2027. This growth is expected to be supported by improved real incomes, robust labor markets, and increased government investment, although ongoing uncertainties in trade policy continue to impact exports and business investment.
Scenario analyses suggest that persistent trade tensions could diminish growth and inflation, whereas a resolution might have a positive effect on both. Although wage growth remains considerable, it is showing signs of deceleration; meanwhile, corporate profits are playing a role in mitigating rising cost pressures.
The ECB remains committed to adjusting rates in response to incoming data, trends in inflation, and the efficacy of policy transmission, maintaining flexibility by not committing to a predefined course of action.
