By Indradip Ghosh
BENGALURU (Reuters) – The European Central Bank will cut interest rates on April 17 amid risks of falling inflation and slower growth, according to a Reuters poll of economists taken before a surprise U.S. announcement to delay most reciprocal tariffs it had put in place.
In a stunning turnaround, U.S. President Donald Trump on Wednesday announced a 90-day pause on hefty duties placed on countries, excluding China which now faces a bigger barrier of 125%. That bought some time for trade negotiators and businesses in the common currency bloc.
Global financial markets rebounded sharply late on Wednesday and on Thursday after Trump’s U-turn.
But a 10% blanket duty on almost all U.S. imports remains in place, and the announcement does not affect existing duties on autos, steel and aluminium, suggesting downside risks to euro zone growth and inflation remain.
The euro’s near 7% rise against the U.S. dollar so far this year is also adding to downward pressure on inflation in the region, allowing room for additional ECB rate cuts.
The ECB, which has cut the key deposit rate six times since June to 2.50%, is widely expected to cut again next week, according to 61 of 71 economists in the April 7-9 Reuters poll.
An over 70% majority expect just one further cut in June, taking the deposit rate to 2.00%, but brought forward from Q3 in a March survey.
Still the rate outlook was modest compared with interest rate futures, which are pricing around three reductions by end-2025 versus about four on Wednesday.
There was also no majority in the poll on where rates will be in the second half of this year but the median forecast was for 2.00%.
“We expect the ECB to deliver a 25bp rate cut at the April meeting,” wrote economists at Morgan Stanley in a note published hours after the U.S. declared the tariff pause.
“We think we are on track for Q1 2025 growth to be in line with the ECB expectation … But the focus will be on the downside risks to inflation stemming from the external environment (oil and FX), which could mechanically move the inflation path projected by the ECB below 2% already from Q2.”
Extreme volatility in U.S. trade policy – Trump has implemented tariffs and rolled them back several times – has left everyone guessing, making it difficult to forecast with any great conviction.
“In all honesty, the current situation is not only chaotic, it’s crazy,” wrote Carsten Brzeski, global head of macro at ING in a note published after the announcement.
“We could make some instant changes to our forecasts, but given the volatility, we prefer giving them some more thought. Extrapolating short-term trends and events into the future has turned out to be a very risky strategy.”
SOURING BUSINESS SENTIMENT
All 33 economists responding to an additional question said U.S. tariffs had negatively impacted business sentiment in the common currency bloc, with over a third saying “very negative”.
“Overall, the new tariff level would still imply a major deterioration in the European trade environment compared with a few months ago,” noted Reinhard Cluse, chief European economist at UBS.
“We also assume additional damage from uncertainty and lower confidence that cannot be easily undone by Wednesday’s announcement, and by negative second-round effects.”
Only last month, economists were optimistic infrastructure and defence spending plans, particularly in Germany, would revitalise the bloc’s long-sluggish economy.
But sentiment has soured since then.
A 91% majority of respondents, 32 of 35, surveyed prior to the halt, said U.S. tariffs would have a bigger impact this year than fiscal spending plans. However, most said it would be the opposite situation in 2026.
While inflation is expected to stay above the ECB’s 2% target this year, according to poll medians, disinflation risks are growing.
Poll median forecasts showed the economy would expand 0.8% this year, a slight downgrade from 0.9% predicted in March, picking up to 1.2% next year.
(Other stories from the Reuters global economic poll)
(Reporting by Indradip Ghosh; Polling by Purujit Arun and Anant Chandak; Editing by Hari Kishan, Ross Finley and Alison Williams)
