European Central Bank Cuts Interest Rates Amid Economic Stagnation

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The European Central Bank (ECB) has lowered its interest rates by a quarter of a percentage point to 2.75%, responding to a stagnating economy across the eurozone. This decision follows reports indicating significant slowdowns in the region's largest economies, France and Germany, both of which experienced contractions in the last quarter of 2024. Specifically, Germany's economy declined by 0.2%, while France shrank by 0.1%, and Italy recorded no growth.

The ECB stated that inflation remains elevated, primarily due to wages and prices adjusting sluggishly to previous inflation spikes. Although wages have shown signs of moderation, many businesses are absorbing rising costs instead of passing them onto consumers. Carsten Brzeski, the global head of macro at ING, noted that the ECB's interest cut was warranted, but further reductions would be necessary to address the weak economic conditions. Financial markets predict additional cuts totaling one percentage point for the remainder of the year as the ECB continues to navigate persistent economic challenges.

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