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The European Central Bank is expected to leave interest rates unchanged, reflecting a growing confidence that the euro zone economy is proving more resilient than previously feared. Recent economic data from across the single currency area has outperformed earlier ECB forecasts, easing pressure on policymakers to consider near term rate cuts.

Growth across the 20 member bloc has been supported by exporters adapting more effectively to US tariffs than anticipated, alongside stronger domestic spending in Germany. This has helped offset ongoing weakness in parts of the manufacturing sector. At the same time, inflation has remained close to the ECB’s 2 percent target, driven largely by continued price increases in services rather than goods.

With inflation expected to remain broadly stable, the ECB is likely to revise up both its growth and inflation projections. While officials are unlikely to declare the end of the recent easing cycle in explicit terms, such revisions would signal that the phase of rapid rate reductions may now be behind them. The ECB cut its main policy rate from 4 percent to 2 percent in the year to last June, and some Governing Council members had already argued for a pause at earlier meetings.

Economic uncertainty, particularly around global trade, has begun to clear, giving policymakers greater confidence in the current policy stance. That said, this confidence should not be mistaken for an appetite to move quickly in the opposite direction. Speculation among some market participants about a possible rate increase has gained attention, though many economists see this debate as premature given unused capacity across manufacturing and lingering structural challenges.

ECB President Christine Lagarde is expected to avoid committing to any discussion about future rate increases or cuts. Most analysts anticipate interest rates will remain broadly unchanged through 2026 and 2027, although forecasts vary widely beyond that point.

Looking ahead, the ECB is expected to acknowledge that the euro zone economy is now growing close to its long term potential, estimated at around 1.4 percent annually. Business sentiment has improved, industrial output is showing early signs of stabilising, and employment conditions remain relatively tight. Wage growth has begun to catch up with post pandemic price increases, supporting household spending.

Further support is expected from planned German government investment in defence and infrastructure, alongside continued strength in the services sector. These factors underpin expectations that growth will continue into next year, albeit without the momentum seen in earlier recoveries.

The ECB has already indicated it will raise its growth forecasts, which currently point to GDP growth of 1.2 percent this year, 1.0 percent in 2026 and 1.3 percent in 2027. Core inflation projections for the latter years are also expected to edge higher. These forecasts will be closely watched, as they strip out the temporary effects of changes to the EU’s carbon trading scheme, which are expected to distort headline inflation figures in the coming years.

Currency movements also remain a key consideration. The euro’s strength against the Chinese renminbi is adding pressure to European competitiveness, particularly in manufacturing. While the euro dollar exchange rate often dominates headlines, some economists argue the euro renminbi relationship poses a more significant long term challenge for the region.

For businesses and households, the ECB’s steady stance signals a period of relative monetary stability. That stability, however, should not be assumed to remove wider economic risks, particularly those linked to global trade, fiscal policy and structural competitiveness within the euro zone.

Disclaimer: This article is based on publicly available information and is intended for general guidance only. While every effort has been made to ensure accuracy at the time of publication, details may change and errors may occur. This content does not constitute financial, legal or professional advice. Readers should seek appropriate professional guidance before making decisions. Neither the publisher nor the authors accept liability for any loss arising from reliance on this material.