ECB Interest Rate Hikes Seen as Unlikely by Capital Economics

Capital Economics has released a forecast suggesting that the European Central Bank (ECB) will not raise interest rates as much as markets expect. According to the research firm, the euro-zone economy is expected to grow at approximately its trend rate of 1% over the next one to two years.

The growth rate is projected to vary across major member states, with Germany, France, and Italy growing at a modest pace. Spain, however, is expected to continue outperforming due to continued rapid immigration.

Headline inflation in the euro-zone is projected to rise to about 4% at the turn of the year, while core inflation will edge up over the next few quarters due to indirect effects of higher energy costs.

Capital Economics expects second-round effects on wages to be trivial, with headline inflation falling sharply next year and reaching levels consistent with the 2% target by the end of 2027.