Inflation Risks Stable, ECB Adopts Cautious Stance
Recent statements indicate a subtle shift in the European Central Bank's (ECB) outlook. Executive Board member Frank Elderson and Croatian Central Bank Governor Boris Vujčić both noted that inflation risks are now balanced, and the eurozone's economic growth has shown unexpected resilience. This stance is seen as a "hawkish rebuttal" to market expectations of a rate cut, increasing the likelihood of policy stability by the end of the year.
In an interview with Spanish media, Elderson pointed out that the risks of inflation rising and falling are largely symmetrical, stating, "Recent economic news is generally positive, and some previously concerning downside risks have gradually diminished." He believes current policies are effectively constraining inflation, and thus, additional easing is not needed for now.
Europe's Economic Performance Exceeds Expectations, Rate Cut Expectations Decline
In his speech in London, Vujčić further emphasized that the performance of the European economy is "significantly stronger than expected at the beginning of the year." He noted that the recovery in manufacturing activities, stable energy prices, and maintaining a high household savings rate provide the eurozone with a foundation for continued moderate recovery.
In the market, currency futures data show that the possibility of a rate cut by December has fallen to near zero, whereas the betting on a "symbolic rate cut" by mid-2026 is around 40%. Analysts believe this shift implies that in the coming months, the ECB will focus on evaluating the sustainability of inflation's downward trend, rather than immediately turning to easing.
Tariffs and External Competition as Potential Concerns
Regarding the external environment, Vujčić mentioned that U.S. tariff policies and China's export growth remain key variables impacting the eurozone's inflation and trade patterns. He stated that although the tariff shock is limited in the short term, the inventory adjustments due to the advance effect of imports might still suppress industrial output in the next quarter.
Meanwhile, European manufacturing is facing structural competition from the Asian region. Especially in the fields of automotive and machinery manufacturing, the rise of Chinese and Korean companies challenges the export shares of traditional powerhouses like Germany and Italy. This long-term pressure might limit the profit margins of some industries in the eurozone.
Sluggish Domestic Demand, Consumer Confidence is Key
Despite high household savings rates, European consumers' willingness to spend remains low. Vujčić admitted that the ECB "has not fully understood the fundamental reasons for the slow recovery in consumption." Analysts believe that the combined pressure of energy costs, tax burdens, structural labor market disparities, and geopolitical uncertainty is an important factor delaying consumer confidence.
If household savings do not effectively translate into actual consumption, eurozone economic growth might slow down in the coming quarters. However, since financial conditions have tightened significantly compared to earlier, most officials still advocate "mainly observing" at this stage to allow for greater policy flexibility.
Hawkish Tone May Continue Until 2025
In terms of policy direction, the ECB is entering a phase of observation and verification. It is generally expected that the current interest rates will remain unchanged in the December monetary policy meeting and continue assessing the coordination between inflation and economic growth in the first half of 2025. If inflation remains steady around 2%, the window for a rate cut might be further delayed.
Institutional analysis suggests that as the strong dollar trend eases and the eurozone's fundamentals improve, the euro (EUR/USD) is likely to remain strong in the short term. Overall, a "hawkish steady state" may become the main theme for the ECB in the foreseeable future.
