Ethenea: The ECB slams on the brakes and ends the easing cycle

17 december 2025

Rente ECB

The European Central Bank (ECB) has delivered a clear message: hardly anyone doubts a pause in interest rates in December.

According to Jörg Held, Head of Portfolio Management at ETHENEA Independent Investors S.A., the key focus now lies on the ECB’s new staff projections. Two questions are central: how persistent will core inflation remain, and are wages at risk of getting out of control?

'It is to be expected that the ECB will draw a line under the process: further interest rate cuts are not in sight. Current data do not justify additional easing. Markets are pricing in a ‘Goldilocks’ scenario—stronger growth combined with further easing inflation. From a duration perspective, this points to a relatively calm year in 2026.'

ECB staff projections extended to 2028 for the first time

The main event of the December meeting will be the release of the updated ECB staff projections, which will extend to 2028 for the first time. Despite lower energy prices and the postponement of the EU emissions trading system, analysts do not expect a significant downward revision of inflation forecasts. Core inflation could even be revised slightly higher.

Growth outlook brightens

Expectations of a stabilising economy are in line with market sentiment. After the euro area weathered global uncertainties surprisingly well, growth forecasts are improving. A recent Bloomberg survey shows that the majority of experts expect the deposit rate to remain stable at 2% over the next two years. As inflation appears to be settling around the 2% mark, there is no need for hasty rate moves in either direction.

The ECB’s expected decision to bring interest rate cuts to an end in December is based on a combination of surprisingly resilient growth data and persistent wage pressures. Real GDP growth in the third quarter was revised upward to 0.3% quarter-on-quarter. The strengthening in growth was driven primarily by government consumption and investment.

Surprising wage surge in the third quarter

At the same time, compensation per employee surprised in the third quarter with a year-on-year increase of 4%. Although the ECB expects wage growth to moderate, the current dynamics signal a continued risk to services inflation.

Overall, inflation data are likely to reinforce the ECB’s cautious stance: the flash estimate of core inflation for November remained unchanged at 2.4% year-on-year, while headline inflation edged up slightly to 2.2%.