We expect euro-zone GDP growth to remain fairly slow in the coming years. Germany’s fiscal stimulus should provide a temporary and fairly modest boost, and we don’t think it will do much to raise growth elsewhere. Meanwhile, we think inflation will undershoot the 2% target in 2026 as energy prices fall and wage growth slows further, so the balance of risks is tilted towards rate cuts by the ECB. We have pencilled in the central bank cutting its deposit rate from 2% currently to 1.5% next year.
Elsewhere, we think that the SNB will cut its policy rate by 25bp in 2026, taking it back into negative territory, while Norges Bank will also cut by 25bp. By contrast, we suspect that the Riksbank will increase its policy rate next year.
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