He notes: 'While we would not be surprised if the central bank had ultimately to resort to one or two 50-bps cut(s) at some point next year, we do not think the threshold for such action has been hit yet: judging by their communication ahead of the 'purdah period'. Even the doves seem to avoid appearing too 'greedy' and seem comfortable with 25-bps.'

The ECB is likely to revise down its forecasts for GDP growth (from 1.3% to 1.1%) and core inflation (to 2.1–2.2% from 2.3%) for 2025, reflecting recent survey data and lower-than-expected inflation in late 2024. Moëc adds: 'Although we expect that a large majority of the Council will back the cut this week, the hawks are not surrendering easily, with the real battle moving to where the neutral rate is how quickly the ECB’s policy rate should move there.'

Moëc mentions that he’s uncomfortable with the concept of  'keeping some power dry' which the ECB hawks are pushing. He explains: 'We consider that it would be a mistake for the ECB to send the signal there is a limit to its policy capacity, at a time when Europeans are already dealing with an extensive power vacuum, with both France and Germany grappling with political instability.'

Moëc highlights the broader context: 'Of course, central banks cannot fully substitute themselves to governments, but the ECB is in the current configuration the only power centre in the EU which maintains strong, and fast decision-making ability, with time-proven efficient tools at its disposal'. He also underscores the importance of accounting for the increasing sensitivity of GDP growth to uncertainty, citing the European Commission's analysis that an average shock to uncertainty reduces GDP growth by 0.45 percentage points within a year.

'In our baseline, we expect a moderate rebound in investment only because we forecast a proper accommodative stance from the ECB (we are below market pricing with a terminal rate, at the end of 2025, of 1.5%),'  Moëc concludes.