Published by Global Banking & Finance Review®
Posted on January 15, 2025
3 min readLast updated: January 27, 2026
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ECB's chief economist suggests Euro zone households might increase consumption as inflation targets are approached and savings rates decrease.
FRANKFURT (Reuters) -The European Central Bank is likely to keep easing policy this year but needs to be cautious as exceptional uncertainty, from a potential global trade war to domestic politics, cloud the outlook, two of the bank's top officials said on Wednesday.
The ECB cut interest rates four times last year and investors see another three or four moves in 2025 as inflation, now at 2.4%, could inch towards its 2% target in the coming months despite gyrations in the world economy.
That could very well justify further rate cuts but the bank was not yet in position to make a promise, Philip Lane, the ECB's chief economist said.
"From our point of view, saying here's where we think the future rate path is going to be conveys a sense of certainty that we don't feel," Lane said in Hong Kong.
Luis de Guindos, the bank's vice president, was somewhat more committal.
"If the incoming data confirm our baseline, the policy trajectory is clear, and we expect to continue to further reduce the restrictiveness of monetary policy," de Guindos said in Madrid.
But also made clear that the level of uncertainty was exceptional, warranting prudence.
"The outlook is clouded by even higher uncertainty, driven by potential global trade frictions, macroeconomic fragmentation, geopolitical tensions and fiscal policy concerns in the euro area," he said.
Still, Lane remained upbeat about inflation, the bank's primary focus, arguing that conditions are in place for price pressures to ease further, as predicted in the baseline cited by de Guindos.
He argued that services inflation, the single largest item in the consumer price basket, was likely to slow quickly in the near term as wage growth was easing and firms were also seeing lower cost pressures.
"We do think services inflation will come down quite a bit in the coming months," Lane said.
Services inflation has been stuck at around 4% for almost a year and overall price growth cannot fall back to 2% unless this figure starts dropping, Lane said.
On economic growth, both de Guindos and Lane sounded cautious but said that conditions for a rebound were in place, even if trade frictions presented a downside risk.
Speaking about heightened consumer caution, a key puzzle over the past year, Lane argued that households were likely to reduce their exceptionally high savings rate, but only moderately.
The household savings rate stood at 15.3% in the third quarter of last year, well above the 12% to 13% range before the pandemic, keeping overall consumption depressed and economic growth muted.
However, he argued that improved real incomes and lower bank deposit rates were likely to boost spending, even though geopolitical tensions could still weigh on sentiment.
"So, we do think this (high savings rate) is going to come down, but not massively," Lane said.
(Reporting by Balazs Koranyi; Editing by Jamie Freed, Shri Navaratnam and Christina Fincher)
The article discusses potential for increased consumption by Euro zone households as ECB considers easing policies.
Inflation is expected to approach the ECB's 2% target, with services inflation likely to decline.
Global trade tensions, geopolitical issues, and high household savings rates are key factors.
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