Capitol Macro: Rate cuts in the next year or two will provide limited boost to eurozone growth

Jack Allen-Reynolds, an economist at Capitol Macro, said that the boost to eurozone growth from interest rate cuts over the next year or two will be very small. As the European Central Bank will only gradually reduce interest rates and make them higher than pre-epidemic levels, private sector borrowing costs will not fall significantly, interest payments for households and businesses will remain high and loan growth will be limited.

If the economy performs much worse than expected, the ECB may ease policy more quickly, but only to cushion negative shocks, not to help growth. Nevertheless, GDP should continue to expand on the back of rising incomes in the euro area and improving global economic activity.