We expect euro-zone GDP growth to be fairly sluggish in the coming years. Germany’s fiscal stimulus should provide only 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 penciled in two cuts in the second half of 2026, taking the deposit rate from 2% currently to 1.5%.
Elsewhere, we think that the SNB will cut its policy rate by 25bp in 2026, taking it back into negative territory. In contrast, we are forecasting that the Riksbank will increase rates later this year.
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