“We expect the ECB to remain on hold in early 2026 and to reduce policy rates later, provided that services inflation moderates, growth slows more than expected, and long-term bond yields rise.”
- For now, the ECB is in a ‘good place’, with services inflation remaining high and activity data improving more than expected.
- The Eurozone macroeconomic outlook points to decelerating growth and further disinflation this year.
- European equities are supported by a benign macroeconomic outlook, while fears of a potential hawkish pivot from the ECB appear to have been dampened.
Eurozone inflation slowed to 2.0% in December, according to a preliminary estimate, hitting the ECB’s 2% target for the first time since August. We expect inflation to stay below this target both this year and next year, while real GDP growth should slow overall in 2026 despite the recent positive momentum. Growth forecasts were upgraded, while inflation still signals a deceleration due to sluggish private consumption, slowing wage growth, and further euro appreciation (which tends to make exports cheaper).
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