Higher US tariffs will be a substantial drag on the euro-zone economy this year. Looser fiscal policy in Germany will give a small boost in 2026, but overall we expect the euro-zone to grow fairly slowly in the coming years. We also think that the tariffs add to the downside risks to euro-zone inflation. As a result, we now expect the ECB to lower its deposit rate from 2.5% to 1.75% in the coming months (previously 2%) and see only limited scope for hikes in 2026 and 2027.
We have also cut our interest rate forecast for the SNB and removed the rate hikes from our Riksbank profile. It now looks even more likely that Norges Bank will start cutting interest rates this year.
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