Eurozone Economy: No More Stimulus Needed, Says Holger Schmieding

Resilience Amidst Trade Uncertainty

• 💡 Eurozone companies are showing resilience despite the threat of US tariffs and a rising euro, with Germany's EPO survey indicating rising business sentiment.
• 🎯 A potential US tariff rate of 15% is seen as bearable for European businesses, offering a sense of relief.
• 🔑 The fading uncertainty around trade deals is a significant factor boosting confidence in the business community, particularly in manufacturing.

ECB Policy and Interest Rates

• 📈 Markets are reducing expectations for further ECB rate cuts this year, suggesting the Eurozone economy may not require additional stimulus.
• ⚠️ Holger Schmieding believes the ECB should maintain a 2% deposit rate and potentially raise rates in late 2026 or early 2027.
• 💬 ECB President Lagarde's recent comments left room for interpretation on future rate cuts, acknowledging the Eurozone's resilience and the euro's relative strength.

The Euro's Strength and Monetary Policy

• 📉 The strong euro is viewed as less of an obstacle compared to US tariff threats, with the dollar being perceived as weaker.
• 🏦 The existing monetary stimulus from the ECB and fiscal stimulus in Germany are seen as working, evidenced by increased bank lending for mortgages.
• ⚡ The economy needs time to let the current stimulus measures take effect, rather than introducing new ones, assuming no new shocks.

Inflation and Wage Growth Outlook

• ⚠️ A significant concern is inflation potentially falling too low, especially if US tariffs lead to cheaper imports into Europe.
• 📊 However, the resilient Eurozone labor market, with unemployment near record lows, suggests wage inflation will likely pick up again in late 2026 or 2027.
• 🧠 The ECB should focus on its forecasts for economic growth and anticipate a reacceleration of wage inflation, rather than solely on the current deceleration.