Is the ECB done with rate hikes?

The recent data release from Eurostat has revealed that the eurozone's economic performance in the last quarter was more unfavorable than anticipated and may add further to the expectations that the ECBs' rate hike cycle has concluded. While it seems like the central bank is following in the footsteps of its US counterpart (Federal Reserve), it may be impossible to ignore the troubling economic situation faced by the old continent. During July to September, Eurozone GDP contracted by 0.1%, a decline that exceeded economists' expectations of stagnation and which underscored the challenges faced by Europe's economy, with several factors contributing to its sluggish growth. High interest rates, the ongoing cost of living crisis, and weakened global demand are among the primary culprits hampering economic progress.

Within the Eurozone, Germany, the largest member, also experienced a 0.1% contraction in GDP during the same quarter while France's growth was limited to a mere 0.1%, and Italy's GDP stagnated. The deceleration in economic growth is influenced by a combination of factors, including favorable base effects, decelerating wage growth, muted inflationary pressures, and subdued expectations for inflation in the upcoming year. Furthermore, the decline in Eurozone GDP and the prevailing inflation rate signify the impact of interest rate increases that have been implemented across the region in an attempt to contain rampant inflation. This situation, to some extent, alleviates the pressure on the European Central Bank to further raise interest rates and while this scenario may bring a degree of comfort to the European Central Bank, it is still too early to anticipate an imminent rate cut.