The European Central Bank will extend back-to-back interest rate cuts at least until July in an effort to shield the weak euro zone economy, which faces an imminent threat from U.S. tariffs, according to a majority of economists polled by Reuters.
U.S. President-elect Donald Trump is set to return to the White House on Monday. His economic plans, which include at least 10% tariffs on all imported goods, have sent shockwaves through financial markets, raising worries more pain is ahead for the common currency union.
The ECB can ease policy further this year but must find a middle ground that neither induces a recession nor causes an undue delay in curbing inflation, which has turned higher, ECB Chief Economist Philip Lane said on Monday.
The bloc’s top two economies are mired in political turmoil and activity has remained sluggish. Germany’s economy contracted 0.2% last year, the Federal Statistics Office said. The euro zone economy ended 2024 in a fragile state, a PMI survey showed.
“Given the political situations in France and Germany, there is a high risk we will see inactivity in Europe which will certainly hold back investment, consumption and also makes Europe potentially weaker in reacting to Donald Trump,” said Carsten Brzeski, global head of macro at ING. “The ECB will have to deliver on rate cuts, because if they don’t, they risk undershooting inflation,” he said.
The ECB’s Governing Council started its easing campaign last June, delivering four interest rate cuts in 2024. They still have several more in store this year.
All 77 economists in the January 10-15 poll said the deposit rate would fall another 25 basis points on Jan. 30 to 2.75%. A 60% majority, 46 of 77, expect three more cuts by mid-year, in March and two in the second quarter, taking the deposit rate to 2.00%, largely unchanged from last month. The rest, 31, shared varied views on where the rate would be by end-Q2, ranging from 1.75% to 2.50%. It will be 2.00% until at least mid-2026, poll medians showed. A further 30 of 76 economists said the deposit rate would be below 2.00% by end-year while 13 said higher.
Markets are fully pricing in a cut this month and around 90 basis points of reductions in total this year. That is in stark contrast to just one 25 basis point reduction priced in by year-end from the U.S. Federal Reserve amid rising concerns of a resurgence in inflation.
“The threat of tariffs from the U.S. is affecting investment decisions already in the euro area and that’s contributing to the relatively weak growth outlook,” said Chris Scicluna, head of research at Daiwa Capital Markets Europe.
Scicluna was one of the top forecasters for the euro zone in Reuters polls last year, according to LSEG StarMine calculations. “It is possible they (the ECB) will cut rates by more than 100 basis points if the economic outlook deteriorates significantly further,” Scicluna added.
Growth across the 20-member currency union will likely be 1.0% this year and 1.2% next year, the poll showed.
The recent uptick in euro zone inflation, at 2.4% last month, is likely to be short-lived, based on the poll results.
Inflation was expected to drop to the ECB’s 2.0% target in Q2 and stay around there through Q2 of 2026 at least. But asked whether it was more likely inflation would be higher or lower than where they expect it, a majority of economists, 20 of 34 said higher. The rest said lower.
Germany’s economy will grow at a mere 0.4% this year and 1.0% in 2026, a significant downgrade from predictions in October.
Meanwhile, growth in France will slow to 0.8% this year from 1.1% last year and expand 1.1% in 2026.
German retail sales rose in 2024, but growth should be more modest this year due to the high level of uncertainty, according to retail association HDE.
Last year, retail sales rose 1.1% compared to the previous year in inflation-adjusted terms, official data showed on Friday. The HDE forecasts 0.5% growth in real terms this year.
“Consumption and the retail sector in Germany will not really gain momentum in 2025 either,” said HDE managing director Stefan Genth. “There is simply too much uncertainty,” he said. “Wars, high energy costs and overall economic stagnation are a toxic cocktail for consumption.”
In nominal terms, retail sales rose by 2.5% in 2024 and are expected to grow by 2.0% in 2025, according to HDE’s forecast.
The latest HDE survey with 700 retailers shows that 22% of respondents expect sales to increase this year, while almost half of them expect results to be below the previous year’s level.
In December, retail sales fell by 1.6% compared with the previous month, official data showed. Analysts had predicted a 0.2% increase.
Many big names in UK retail had a good Christmas season — despite the sector being generally sluggish — but it seems John Lewis Partnership (JLP) may not have been one of them.
The retailer — which operates its eponymous department stores and webstore, plus Waitrose supermarkets — has missed its profit target after a disappointing festive season.
It hasn’t shared any info officially but internal documents seen by The Telegraph suggest bad news to come when it does release its results.
Those internal documents have only been shared with staff so far with the company saying that sales have fallen short of expectations and it’s unlikely to achieve its hoped-for £131 million full-year profit.
The company is said to have blamed “lower consumer confidence and weaker than expected market confidence” for the sales miss in the month to 21 December, although also the fact that key trading days fell outside the period.
Sales targets were missed at both of the firm’s chains, although the newspaper said it still claimed it outperformed rivals and staff should be “proud of our performance”.
It will be interesting therefore to see exactly what its figures were as a number of rivals have actually reported a good Christmas. If its stores have beaten other supermarkets and chains like M&S, perhaps its targets were too ambitious in the first place.
We won’t know for a while, but we do know that with M&S resurgent, JLP’s supermarkets and department stores have lost some of their lustre as the destination of choice for Britain’s middle classes.
So what were the firm’s benchmarks? Back in September it had said it was seeing strong demand and expected a significant rise in profits for the year to January. The prior year’s pre-tax profit had been £56 million and the year before that it made a loss.
It had also talked about its turnaround efforts paying off and that it was seeing a “considerable improvement” in performance, with the John Lewis chain in particular expected to benefit from a buoyant second half.
It’s been rumoured for some time that he would exit the label but it’s not yet known what his next step will be.
Jones has been widely praised for his work at Dior with his latest men’s collection shown this month being hailed as a success.
He’s been a key creative at LVMH having also designed its Fendi women’s collections. And he helmed Louis Vuitton’s menswear before he joined Dior.
The company said it “wishes to express its deepest gratitude” to the designer “who has accelerated the development of Men’s collections internationally and has greatly contributed to the worldwide influence of the House by creating an inspiring wardrobe that is both classic and contemporary, and connected to some artists of our time”.
And Delphine Arnault, who’s chairman and CEO of Christian Dior Couture,added: “I am extremely grateful for the remarkable work done by Kim Jones, his studio, and the ateliers. With all his talent and creativity, he has constantly reinterpreted the House’s heritage with genuine freedom of tone and surprising, highly desirable artistic collaborations.”
Jones meanwhile called it a “true honour to have been able to create my collections within the House of Dior, a symbol of absolute excellence. I express my deep gratitude to my studio and the ateliers who have accompanied me on this wonderful journey. They have brought my creations to life. I would also like to take this opportunity to thank the artists and friends I have met through my collaborations. Lastly, I feel sincere gratitude towards Bernard and Delphine Arnault, who have given me their full support.”
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