The European Central Bank is also expected to cut interest rates for the first time in more than five years when it meets on Thursday, according to the latest HCOB purchasing managers’ index from S&P Global. It was on the back of the survey that showed private sector output increased in most euro-area countries, with growth in Germany, Italy, and Spain only slightly dampened by a fall in France. The survey, which was the first since the ECB last met, found businesses increased prices more slowly than in April, leading to lower inflation, despite prices for raw materials running high.
When policymakers meet in Frankfurt, the ecb deposit rate is likely to be slashed to 0.25 percentage points from the current 4% ecb deposit rate. However, ECB chief Christine Lagarde is not likely to point at more cuts for the rest of the year, although some members worried about inflation as growth rippled across the 20-member currency zone. Last month’s official data showed inflation in the eurozone rose to 2.6% in May from 2.4% in April, but PMI data suggests the rate could have peaked temporarily.
Recent events have also seen unemployment in the EU hit a record low and an increase in first-quarter 2024 after dropping slightly at the end of 2023. Consequently, according to Lombard Odier senior strategist Bill Papadakis, The 2024 outlook for European growth, unemployment at record lows, and inflation back to normal gives the ECB room to cut interest rates.
Of the four major euro-area economies, only France bucked the upward trend in private sector activity by showing a marginal decline; Germany, Italy, and Spain showed growth, with Spain growing at the fastest rate, a 14-month high.
In contrast, the UK experienced a slackening in the rate of growth of its service sector in May, and while, the US witnessed an acceleration in most sectors, except healthcare. Meanwhile, the Bank of England is also contemplating a cut in borrowing costs, reflecting the fact that prices in the service sector rose at the slowest pace in three years.
hence, this underscores a very changing global economic landscape as the ECB is expected to reset its ecb policy rate to ensure growth and price stability.
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