By Paul Hannon
The European Central Bank is now more worried by the threat of weak economic growth than the risk that inflation will settle above its target, Vice President Luis de Guindos said Thursday.
The ECB last week lowered its key interest rate for the eighth time since June 2024 after figures showed the annual rate of inflation fell to 1.9% in May.
De Guindos's comments suggest the central bank may not be finished with that sequence of rate cuts given the threat to growth posed by higher U.S. tariffs on imports from Europe, echoing a view expressed by ECB Chief Economist Philip Lane Wednesday.
"Compared with the situation a year ago, our concerns have shifted from high inflation to slow growth," De Guindos said in a Brussels speech. "Higher tariffs and the stronger euro make it harder to export, and high uncertainty is weighing on investment."
While the eurozone economy grew more rapidly in the first three months of the year than the ECB had expected, De Guindos said that was due to temporary factors, and surveys pointed to a slowdown over the coming months.
"It is therefore important for us to closely monitor what is happening in the real economy, partly as an early indicator for the inflation outlook," he said.
The ECB's economists forecast that the annual rate of inflation would average 1.6% next year, but return to the bank's 2% target in 2027. However, should growth prove weaker than expected as a result of higher tariffs and greater uncertainty, the inflation rate would likely be lower.
As they have in previous times of peril for the eurozone economy, ECB policymakers urged governments to remove barriers to trade within the European Union, including regulations that lead to a fragmented and stunted market for savings and investment services.
De Guindos repeated that call, arguing that "the stakes have never been higher" for the bloc as the global economy fragments.
"To move on to the next level, we need integration in the real economy and political will to give priority to the European project over national interests," he said. "There is no way around it."
Write to Paul Hannon at paul.hannon@wsj.com
(END) Dow Jones Newswires
06-12-25 0847ET
