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Dec 13, 2024

Investors Predict Steeper ECB Interest Rate Cuts Amid Darkening European Economic Outlook

In a significant economic prediction, major investment firms such as Pacific Investment Management Co. (Pimco) and Fidelity International have voiced concerns that the worsening economic landscape in Europe may necessitate more aggressive interest rate cuts than currently anticipated by the market. As reported by Bloomberg, the latest market pricing suggests the European Central Bank (ECB) may reduce the key interest rate to 1.75% next year. However, Fidelity argues that borrowing costs could tumble further to 1.5% amidst heightened risks.

The potential for further rate cuts could intensify a rally in European debt, which, according to data, has already outshined the US and UK bond markets in 2024. A tracking index by Bloomberg highlights that returns on euro government debt have surged more than 3% this year, compared to a modest 2% gain for US Treasuries and a 2% loss for UK gilts.

The market's hawkish stance remains more conservative than some experts' forecasts. "The market remains somewhat more hawkish than our expectations," stated Salman Ahmed, global head of macro & strategic asset allocation at Fidelity. He indicated the potential for steeper ECB cuts if downsides persist.

The broader economic trajectory in the region paints a grim picture. Both manufacturing and service sectors are under duress, with Germany likely experiencing a second consecutive year of economic contraction. In addition to this economic strain, the region is grappling with political instability in its two largest economies and potential disruption to global trade dynamics with the possibility of Donald Trump's return to the US presidency.

Such factors bolster the argument for more assertive ECB rate cuts compared to its counterparts, where the US Federal Reserve and the Bank of England are predicted to alleviate borrowing rates by roughly 80 basis points by year-end. In contrast, about 125 basis points are expected for the ECB, beyond the recent quarter-point reduction.

Nicolas Forest, chief investment officer at Candriam, highlighted the growing monetary policy divide between the US and Europe, remarking, "The monetary policy divergence between the US and Europe is expected to continue to widen further in 2025, and we maintain a preference for European rates vs US ones in terms of duration."

The ECB's recent announcement hinted at further rate cuts, moving away from language suggesting a "sufficiently restrictive" policy. This signals a possible pivot towards a stimulative stance aimed at invigorating inflation.

New quarterly data also underscore the need for heightened support, with economic growth and inflation projections for the next year revised downward. However, Fidelity's Ahmed expressed skepticism, labeling these forecasts as "somewhat optimistic" given the looming threat of Trump's trade policies. "We believe growth will continue to turn out weaker than what the ECB expects, and see potential for markets to price lower terminal rates," asserted Konstantin Veit, a portfolio manager at Pimco. "The data flow over the coming months will decide the speed and scale of monetary easing from here."

Source: IndexBox Market Intelligence Platform

  1. 1. INTRODUCTION

    Making Data-Driven Decisions to Grow Your Business

    1. REPORT DESCRIPTION
    2. RESEARCH METHODOLOGY AND AI PLATFORM
    3. DATA-DRIVEN DECISIONS FOR YOUR BUSINESS
    4. GLOSSARY AND SPECIFIC TERMS

  2. 2. EXECUTIVE SUMMARY

    A Quick Overview of Market Performance

    1. KEY FINDINGS
    2. MARKET TRENDS This Chapter is Available Only for the Professional Edition PRO

  3. 3. MARKET OVERVIEW

    Understanding the Current State of The Market and Its Prospects

    1. MARKET SIZE
    2. CONSUMPTION BY COUNTRY
    3. MARKET FORECAST TO 2030

  4. 4. MOST PROMISING PRODUCT

    Finding New Products to Diversify Your Business

    This Chapter is Available Only for the Professional Edition PRO
    1. TOP PRODUCTS TO DIVERSIFY YOUR BUSINESS
    2. BEST-SELLING PRODUCTS
    3. MOST CONSUMED PRODUCT
    4. MOST TRADED PRODUCT
    5. MOST PROFITABLE PRODUCT FOR EXPORT

  5. 5. MOST PROMISING SUPPLYING COUNTRIES

    Choosing the Best Countries to Establish Your Sustainable Supply Chain

    This Chapter is Available Only for the Professional Edition PRO
    1. TOP COUNTRIES TO SOURCE YOUR PRODUCT
    2. TOP PRODUCING COUNTRIES
    3. TOP EXPORTING COUNTRIES
    4. LOW-COST EXPORTING COUNTRIES

  6. 6. MOST PROMISING OVERSEAS MARKETS

    Choosing the Best Countries to Boost Your Exports

    This Chapter is Available Only for the Professional Edition PRO
    1. TOP OVERSEAS MARKETS FOR EXPORTING YOUR PRODUCT
    2. TOP CONSUMING MARKETS
    3. UNSATURATED MARKETS
    4. TOP IMPORTING MARKETS
    5. MOST PROFITABLE MARKETS

  7. 7. GLOBAL PRODUCTION

    The Latest Trends and Insights into The Industry

    1. PRODUCTION VOLUME AND VALUE
    2. PRODUCTION BY COUNTRY

  8. 8. GLOBAL IMPORTS

    The Largest Importers on The Market and How They Succeed

    1. IMPORTS FROM 2012–2024
    2. IMPORTS BY COUNTRY
    3. IMPORT PRICES BY COUNTRY

  9. 9. GLOBAL EXPORTS

    The Largest Exporters on The Market and How They Succeed

    1. EXPORTS FROM 2012–2024
    2. EXPORTS BY COUNTRY
    3. EXPORT PRICES BY COUNTRY

  10. 10. PROFILES OF MAJOR PRODUCERS

    The Largest Producers on The Market and Their Profiles

    This Chapter is Available Only for the Professional Edition PRO

  11. 11. COUNTRY PROFILES

    The Largest Markets And Their Profiles

    This Chapter is Available Only for the Professional Edition PRO
    • United States
    • China
    • Japan
    • Germany
    • United Kingdom
    • France
    • Brazil
    • Italy
    • Russian Federation
    • India
    • Canada
    • Australia
    • Republic of Korea
    • Spain
    • Mexico
    • Indonesia
    • Netherlands
    • Turkey
    • Saudi Arabia
    • Switzerland
    • Sweden
    • Nigeria
    • Poland
    • Belgium
    • Argentina
    • Norway
    • Austria
    • Thailand
    • United Arab Emirates
    • Colombia
    • Denmark
    • South Africa
    • Malaysia
    • Israel
    • Singapore
    • Egypt
    • Philippines
    • Finland
    • Chile
    • Ireland
    • Pakistan
    • Greece
    • Portugal
    • Kazakhstan
    • Algeria
    • Czech Republic
    • Qatar
    • Peru
    • Romania
    • Vietnam

  12. LIST OF TABLES

    1. Key Findings In 2024
    2. Market Volume, In Physical Terms, 2012–2024
    3. Market Value, 2012–2024
    4. Per Capita Consumption, By Country, 2018–2024
    5. Production, In Physical Terms, By Country, 2012–2024
    6. Imports, In Physical Terms, By Country, 2012–2024
    7. Imports, In Value Terms, By Country, 2012–2024
    8. Import Prices, By Country Of Destination, 2012–2024
    9. Exports, In Physical Terms, By Country, 2012–2024
    10. Exports, In Value Terms, By Country, 2012–2024
    11. Export Prices, By Country Of Origin, 2012–2024

  13. LIST OF FIGURES

    1. Market Volume, In Physical Terms, 2012–2024
    2. Market Value, 2012–2024
    3. Consumption, By Country, 2024
    4. Market Volume Forecast to 2030
    5. Market Value Forecast to 2030
    6. Products: Market Size And Growth, By Type
    7. Products: Average Per Capita Consumption, By Type
    8. Products: Exports And Growth, By Type
    9. Products: Export Prices And Growth, By Type
    10. Production Volume And Growth
    11. Exports And Growth
    12. Export Prices And Growth
    13. Market Size And Growth
    14. Per Capita Consumption
    15. Imports And Growth
    16. Import Prices
    17. Production, In Physical Terms, 2012–2024
    18. Production, In Value Terms, 2012–2024
    19. Production, By Country, 2024
    20. Production, In Physical Terms, By Country, 2012–2024
    21. Imports, In Physical Terms, 2012–2024
    22. Imports, In Value Terms, 2012–2024
    23. Imports, In Physical Terms, By Country, 2024
    24. Imports, In Physical Terms, By Country, 2012–2024
    25. Imports, In Value Terms, By Country, 2012–2024
    26. Import Prices, By Country, 2012–2024
    27. Exports, In Physical Terms, 2012–2024
    28. Exports, In Value Terms, 2012–2024
    29. Exports, In Physical Terms, By Country, 2024
    30. Exports, In Physical Terms, By Country, 2012–2024
    31. Exports, In Value Terms, By Country, 2012–2024
    32. Export Prices, 2012–2024

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