We expect economic growth in the euro-zone to remain fairly slow this year and next as low confidence and slowing income growth weigh on consumption, while euro-zone exporters struggle with deteriorating competitiveness. Germany’s fiscal stimulus should provide a temporary boost, but we suspect that it will be smaller than most forecasters anticipate. Meanwhile, we think that inflation will undershoot the 2% target as energy prices decline and wage growth keeps slowing. As a result, we think the ECB may be forced to cut interest rates in 2026, so we have pencilled in two more 25bp cuts.
Elsewhere, we think that the SNB will cut rates back into negative territory later this year while Norges Bank will also lower its policy rate, albeit to a much higher level. We think that the Riksbank is more likely to raise its policy rate in 2026.