Isabel Schnabel, European Central Bank (ECB) executive board member, said that despite the softening of the labor market and signs of declining business activity, the eurozone economy is not at risk of an imminent recession at the moment. She added that the eurozone economy can count on a recovery driven by domestic consumption, but there are still obstacles on this path.
"Investments can remain sluggish even with lower interest rates. The ECB may continue to ease monetary policy until the rate reaches a neutral value (the level at which the rate has neither a restraining nor stimulating effect on the economy)," Schnabel said, indicating that the neutral rate is now in the range of 2%-3%.
"The still high inflation in the services sector in the eurozone and potential new external shocks are the reason not to act too quickly. Therefore, I advocate a gradual approach to monetary policy easing," Schnabel said.
According to investors' forecasts, the ECB will cut interest rates at each of its upcoming meetings until at least June next year, bringing the deposit rate to 1.75% by the end of 2025. This rate level, according to many economists, is low enough to start stimulating growth.