Expectations of interest rate hikes within the year have waned, with economists generally predicting that the European Central Bank will keep interest rates unchanged until the end of next year.

The latest survey shows that the European Central Bank is expected to maintain the current interest rate levels until the end of next year, and market expectations for a rate hike in 2026 have diminished. Economists surveyed unanimously predict that the European Central Bank Governing Council will keep the deposit rate at 2% during the monetary policy meeting on February 4th and 5th in Frankfurt. Although in this survey, the percentage of economists expecting the central bank to initiate one or more rate hikes before 2028 has increased from about one-fourth in the previous survey to one-third, the percentage of respondents expecting a rate hike within the year has actually decreased. Behind this shift in opinion is the increasing uncertainty in the economy: US President Trump has signaled the possibility of tearing up the trade agreement signed with Europe last summer at any time, while the strong euro is also putting pressure on Eurozone exports, further dragging down prices already below the inflation target. European Central Bank officials led by President Lagarde believe that the current monetary policy framework is sufficient to address future challenges. However, due to the impact of the euro's continuous appreciation, officials such as Martin Kocher, the President of the Austrian Central Bank, emphasize the need for the central bank to be prepared to take swift action. Nerijus Maciulis, an economist at the Swedish central bank, said, "Lagarde is likely to reiterate that the Eurozone's economic fundamentals are generally strong, but risks remain high. In the first few weeks of 2026, the fragility of various trade agreements has been fully demonstrated." Trump threatened at the World Economic Forum that if Europe does not hand over Greenland to the United States, higher tariffs will be imposed, leading surveyed economists to believe that the current geopolitical tensions have risen to the highest level in at least two years. Despite subsequent concessions by Trump, this event has also led European countries to strengthen their cooperation with other regions. After signing a trade agreement with several South American countries earlier this month, Europe reached a free trade agreement with India this week. Gavin Friend, a senior market strategist at the National Australia Bank, said, "While we expect the US-EU trade agreement to ultimately be preserved, there may be several occasions in the future where it comes close to breaking down." Friend is one of the economists who predicted that the agreement reached last summer will withstand the latest turmoil by 76%. Regarding the strong euro, he believes that the exchange rate between the euro and the dollar in the range of 1.20 to 1.25 is "manageable" for the European Central Bank. Influenced by overseas investors' cautious outlook on the US economy, the euro has appreciated by about 15% against the dollar over the past year, breaking through the 1.20 mark recently. Currently, policymakers at the European Central Bank have not issued warnings about this, but are closely monitoring the situation. Ilias Tsirigotakis, an economist at the National Bank of Greece, said, "Although a significant devaluation of the dollar is still a small probability extreme event, if the euro exchange rate continues to rise, the European Central Bank will have to reassess the risk balance of Eurozone inflation." The latest economic forecasts from the European Central Bank show that consumer price inflation in the Eurozone will be slightly below the 2% target in 2026 and 2027, returning to that level only by 2028. Economists surveyed believe that the downside risks to inflation in the Eurozone will be greater in the coming months, with upward risks increasing in 2027, and overall inflation remaining on track in the medium term. Nevertheless, traders have increased their bets on the European Central Bank cutting interest rates this year. In this survey, only 12% of respondents predicted that the central bank would initiate one or more rate cuts before the end of 2027, but about 40% of scholars believe that the possibility of a rate cut is still higher than a rate hike. Economists David Powell and Simona Delle Chiaie said, "At the beginning of 2026, Europe faced multiple geopolitical disturbances, and the European Central Bank will continue to focus on economic fundamentals rather than short-term fluctuations. This means that the central bank is likely to downplay the current trade dispute related to Greenland, slight inflation falling below the 2% target, and the impact of the euro's appreciation. However, these developments also highlight that the downside risks to the Eurozone's economic outlook are accumulating." Hopes for Eurozone economic growth are pinned on the boost that various countries' governments will receive from increased infrastructure and defense spending. Economists surveyed predict that the boost Germany will receive from such investments will exceed the Eurozone's overall level. As the largest economy in the Eurozone, Germany's economy has recently lagged behind other member states, only returning to a growth trajectory recently. Preliminary data for the Eurozone's GDP in the fourth quarter of 2025 will be released later on Friday, with analysts expecting the Eurozone economy to grow by 0.2% quarter-on-quarter. Most surveyed economists believe that the current economic output in the Eurozone is mainly constrained by structural factors, a sharp contrast to the previous widely held view that cyclical factors dominate. Carsten Brzeski, an economist at ING in the Netherlands, said, "The European Central Bank will increasingly emphasize that monetary policy plays a very limited role in addressing structural economic weaknesses, hoping to dampen speculation about rate cuts. In the current complex and volatile global situation, the European Central Bank has become almost a benchmark for policy continuity."