European Central Bank Cuts Interest Rates Again to Boost Stagnant Economy.

On Thursday, January 30th, the European Central Bank lowered its interest rates from 3% to 2.75% in an effort to boost the stagnating economy. Inflation-driven price hikes have weakened consumer confidence, and businesses are facing uncertainty due to political turmoil in major economies like France and Germany.

This marks the 5th rate cut by the European Central Bank after six meetings. Just hours before, the Federal Reserve announced a pause in rate cuts, maintaining policy rates between 4.25% and 4.5%, highlighting stronger economic growth in the United States compared to the stagnation experienced in Europe at the end of last year.

Christine Lagarde, the President of the European Central Bank, stated that “the progress in tackling inflation is proceeding well” and expects inflation to fall to the bank’s target of 2% within this year.

Lagarde mentioned that the rate cut by the European Central Bank will help support growth. She said, “The economy still faces headwinds, but with real income increasing and the gradual fading of the restrictive monetary policy impact, we should see a gradual recovery in demand.”

Despite a decrease in the inflation rate from a peak of 10.6% in October 2022, inflation in December 2024 remained slightly above the target at 2.4% due to rising energy prices.

However, concerns over economic growth have overshadowed worries about inflation. The European economy stalled at the end of last year. According to data from Eurostat, the European Union’s statistical office, the GDP growth rate for the Eurozone’s 20 countries slowed to zero in the fourth quarter of 2024, with an annual growth of 0.7%.

One of the reasons for this is companies’ concerns about potential disruptions in trade under the new administration of former US President Trump. Despite the decrease in the inflation rate, consumers remain cautious about spending.

Additionally, major European economies like Germany and France are experiencing political turmoil, leaving both businesses and consumers uncertain about future government spending, regulations, and taxes.

The political deadlock in Germany may ease after the February 23rd election, which will end the ruling coalition of Olaf Scholz from the Social Democratic Party. The coalition has been embroiled in disputes for months, unable to reach consensus on economic issues.

The political impasse in France may take more time to resolve as parliament remains divided, with the earliest possibility of new elections not until July. There are significant disagreements within parliament on how to address the country’s sizable budget deficit.

(Adapted from relevant articles by the Associated Press)