The European Central Bank Lowers the Benchmark Rate by 0.25% to Help Stagnating Economies.

(VOR News) – To invigorate a faltering economy, the European Central Bank lowered its benchmark interest rate on Thursday.

During this time, businesses are striving to manage the political turmoil in major countries such as France and Germany, while consumers, facing inflationary pressures, are meticulously evaluating their spending.

The US Federal Reserve chose to sustain interest rates at their existing levels, leading to a decrease. This decision highlights the pronounced disparity between the vigorous expansion of the US economy and the stagnation of Europe, which recorded no growth at the conclusion of the prior year.

The governing council of the European Central Bank reduced its benchmark rate by 25 basis points to 2.75 percent during a meeting at its headquarters in Frankfurt, Germany.

Christine Lagarde, President of the European Central Bank (ECB), stated.

“The disinflation process is advancing effectively.” Inflation is expected to fall below the bank’s 2% target “within this year.” She believes that the economy will gain from the European Central Bank (ECB)’s interest rate cut.

The economy encounters ongoing obstacles; yet, it is expected that demand will strengthen over time due to increasing real earnings and the waning effects of tight monetary policy, as stated by the economist. The interest rate was decreased for the fifth time since the historic benchmark of 4% on Thursday, and for the fourth consecutive time.

A large number of respondents are more concerned about the growth rate than the inflation rate. Although it has declined from its October 2022 top of 10.6%, inflation persists marginally above the December target of 2.4% owing to high energy prices.

At the end of the previous year, the European Central Bank economy remained stagnant. This marked Germany’s second consecutive year of diminishing productivity, which served as the principal economic driver of the region.

Eurostat, the statistical office of the European Union, announced that GDP of the 20 eurozone states remained unchanged in the fourth quarter of 2024. During the year, GDP saw a 0.7% rise.

Businesses are concerned about potential trade disruptions stemming from the forthcoming government of President Donald Trump. This has resulted in an economic deceleration, with a growth rate of 0.4% in the third quarter.

Although inflation declined from its peak of 10.6% in October 2022, consumers remained prudent in their purchasing decisions due to the lingering negative impacts of inflation. This remained true long after inflation had diminished.

Conversely, GDP of the United States rose by 0.6% in the fourth quarter, yielding an annual growth rate of 2.3%.

Germany is currently confronting several obstacles, including the political stalemate in Berlin, the onerous bureaucracy, and the termination of affordable energy supplies from Russia. The fourth quarter experienced a 0.2% contraction in GDP. In 2024, Germany, the largest economy in Europe, recorded a 0.2% decline in output for the second consecutive year.

This year’s European Central Bank projections match last year’s.

On Wednesday, the administration adjusted its 2025 growth forecast from 1.1% to 0.3%.

The predominant economic systems of the European Central Bank. The political instability in France and Germany has led businesses and consumers to voice concerns on the government’s forthcoming tax, spending, and regulatory plans.

The political turmoil in Germany may be alleviated by the national election on February 23, subsequent to the breakup of Chancellor Olaf Scholz’s Social Democratic governing coalition. This partnership engaged in extended negotiations concerning economic strategy.

France may necessitate further time to resolve its current stalemate owing to significant disagreements inside the French parliament and the inability to hold a new election until at least July.

The resolution of the nation’s significant financial imbalance is a sensitive matter among different political groups. Following Donald Trump’s election, economic forecasts have been revised due to his support for new and increased import taxes.

This may adversely impact Europe’s export-driven economy. The demand for component suppliers has been negatively impacted by the decrease in electric car uptake and Germany’s decision to terminate purchase subsidies for electric vehicles.

The expense of their acquisitions raises concerns among customers, as demonstrated by many consumer confidence metrics, notably the economic sentiment index created by the European Central Bank Union’s executive committee.

It is unclear if they are reacting to current price escalations or anticipating forthcoming ones, potentially affected by tariffs enacted by the Trump administration.

SOURCE: AP

SEE ALSO:

Bank of Canada Cuts Benchmark Interest Rate to 3 Percent

President Donald Trump is Appealing his Hush Money Conviction in New York.