Despite the uncertainty hanging over the global economy, which perhaps has more to do with the erratic nature of Donald Trump’s policymaking over and above his tariffs themselves, the European Central Bank’s (ECB) monetary policy decisions have become relatively straightforward.
Frankfurt is expected to announce a further interest rate cut on Thursday, with a combination of forces including weaker wage growth, falling energy prices and a stronger euro keeping an anchor on price growth.
A stronger euro makes imported goods and services, including energy, cheaper to buy.
Euro zone inflation figures published this week showed a slowing in price rises to 1.9 per cent in May, below the ECB’s 2 per cent target rate for the first time in eight months.
All of which makes the decision to lower interest rates from an ECB’s perspective relatively easy.
The focus has now switched sharply from inflation to the likely impact of tariffs which cannot really be predicted until the outcome of negotiations between Brussels and Washington becomes clearer.
But the ECB might be minded to cut rates as an insurance against a likely tariff-induced shock to the euro zone economy.
Growth across the bloc is hovering at less than 1 per cent and the forecasts for this year are fragile even before the impact of tariffs is considered.
And the continent’s driving-force economy, Germany, has not seen significant growth in five years.
The likely growth hit – with consumers said to be putting off purchases and firms pausing planned investment – will take time to play out.
The Organisation for Economic Co-operation and Development (OECD) is warning that Ireland is one of the most exposed economies – after Mexico and Canada – to Washington’s protectionist agenda.
In an analysis, this week, the Paris-based OECD said the US president’s trade policies would damage consumer and business sentiment in Ireland and could “weigh heavily” on economic growth if the Trump administration added pharmaceuticals to the list of imports subjected to tariffs.
It also warned that public spending in the Republic was “surging” as the new Government rolled out measures announced in Budget 2025 and that tax revenues, while strong at the moment, could weaken on the back of a slowdown in global trade.
