<\/p>\n
The central bank moves to counter Trump\u2019s tariff threats and mounting economic uncertainty.<\/p>\n
The European Central Bank cut interest rates Thursday for the seventh time to counter worries about economic growth fuelled by President Donald Trump\u2019s tariff onslaught.<\/p>\n
The bank\u2019s move should support economic activity in the 20 countries that use the euro currency by making credit more affordable for consumers and businesses.<\/p>\n
ECB President Christine Lagarde said at a post-decision news conference that \u201cthe major escalation in global trade tensions and the associated uncertainty will likely lower euro area growth by dampening exports.\u201d<\/p>\n
\u201cAnd it may drag down investment and consumption,\u201d she said.<\/p>\n
The bank\u2019s rate-setting council decided at a meeting in Frankfurt to lower its benchmark rate by a quarter percentage point to 2.25%. The bank has been steadily cutting rates after raising them sharply to combat an outbreak of inflation from 2022 to 2023.<\/p>\n
Now that inflation has fallen, growth worries have taken centre stage. The economy in the 20 countries that use the euro grew a modest 0.2% in the last three months of 2024. Inflation was 2.2% in March, close to the bank\u2019s target of 2%.<\/p>\n
The cut was widely expected by analysts given the sudden shadow cast over the eurozone\u2019s growth outlook by Trump\u2019s April 2 announcement of unexpectedly high tariffs, or import tax, on goods from other countries starting at 10% and ranging as high as 49%. The European Union faces a 20% tariff.<\/p>\n
At the bank\u2019s last meeting on March 6, Lagarde had raised the possibility of an upcoming \u201cpause\u201d in the bank\u2019s series of rate cuts. But that option was practically eliminated by Trump\u2019s announcement.<\/p>\n
The bank\u2019s benchmark steers rates throughout the economy. Lower interest rates make it less expensive to borrow money and buy goods ranging from homes to new factory equipment. That supports spending, business investment and hiring.<\/p>\n
Trump has suspended the tariffs for 90 days, but the possibility of the 20% tariff rate he has proposed for Europe left economists and policymakers concerned that the higher costs will weigh on business activity \u2014 and lead to slower growth or even a recession if he carries through. The U.S. is Europe\u2019s largest trade partner with some 4.4 billion euros in goods and services crossing the Atlantic every day in both directions.<\/p>\n
Uncertainty is another factor that could slow the economy since Trump\u2019s pause for negotiations leaves it unclear where the tariff rate will actually settle. Businesses may hold off on making decisions if they don\u2019t know what their costs will be.<\/p>\n
European Union officials have offered Trump a \u201czero for zero\u201d option that would see both sides dropping tariffs on industrial goods including cars. But Trump has said that won\u2019t be enough, and raised the possibility of Europe importing large additional quantities of US liquefied natural gas.<\/p>\n
Economists at Berenberg bank think that by midyear some of the tariffs will be negotiated away, ending at around 12%. However that is still around 10 percentage points higher than average tariffs before Trump. in addition to that comes a separate 25% tariff on autos, aluminum and steel from all countries. The auto tariff will hit Europe\u2019s prominent auto industry hard \u2013 and Trump has indicated it is is not up for negotiation.<\/p>\n
Lagarde said the \u201ccloud of uncertainty\u201d over tariffs meant that rate decisions going forward would have to be taken on a meeting by meeting basis depending on what happens during the 90-day tariff truce.<\/p>\n
\u201cThere is a negotiation which is ongoing, players around the tables have stated their position, proposals have been made, at least on one side, but all of that could change,\u201d she said.<\/p>\n
\u201cThere\u2019s a degree of unpredictability which adds to the uncertainty.\u201d<\/p>\n
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