Lacklustre growth spoils taste of cooling inflation

As we step into the new year, we find ourselves navigating a landscape marked by tempered optimism and persistent challenges.

The relief offered by the continued slowing of inflation is overshadowed by a lacklustre economic recovery and an ongoing investment malaise.

It is a bittersweet moment, reflecting both progress achieved and enduring uncertainty.

We have already taken decisive steps this year, and we still have considerable room to cover. Maintaining a gradual, step-by-step approach through 25 basis point rate cuts continues to be the most prudent strategy.

By doing so, we can provide a helping hand, alleviating some of the economic drag we are experiencing. Simultaneously, this approach allows us to keep our powder dry.

Incoming cuts must be approached with caution and flexibility, as the economic horizon is anything but predictable.

We will, most certainly, encounter new challenges, but it’s far too early to make judgements or calculate the consequences for Europe.

A more aggressive monetary easing would require a dramatic shift in conditions to justify it. While impactful in the short term, such a measure risks overextending our tools without addressing the root causes of Europe’s sluggish recovery.

Europe’s economic malaise is largely structural and demands solutions that extend beyond the remit of monetary policy. This continues to weigh heavily on the continent’s growth potential.

We urgently need to revitalise investment activity. This is a major problem that we cannot afford to ignore. Let us not turn a blind eye to it.

Lower interest rates can provide breathing space, but they cannot replace the vital reforms, innovation, and investments that are so urgently needed. Policymakers must act swiftly and decisively.

Without reforms, even the lowest interest rates will not save Europe from harm. Monetary policy is powerful but cannot shoulder the burden alone.

Flexibility and data dependence will remain the cornerstones of our approach. When necessary, we will act decisively. However, we must resist the temptation to overreact to short-term pressures.

The easing of inflation is a welcome development, but it is not the final chapter.