We expect euro-zone GDP to increase at a moderate pace this year and next. Germany’s fiscal stimulus is likely to be smaller, slower and less effective than many expect, while growth will be stronger in the smaller economies. Meanwhile, we forecast inflation to undershoot the 2% target in 2026 as energy prices fall and wage growth eases further. On balance we think the ECB is most likely to cut interest rates before the end of the year – we have penciled in 50bp of rate cuts which would bring the deposit rate down to 1.5% by December.
Elsewhere, we forecast the SNB to cut its policy rate by 25bp this year, taking it back into negative territory, while Norges Bank will also cut by 25bp. In contrast, we suspect that the Riksbank will raise its policy rate.
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