The European Central Bank may adopt a more relaxed monetary policy next year.

The euro weakened slightly after the European Central Bank (ECB) cut interest rates as expected and signaled further rate reductions. A 25-basis-point cut has prompted investors to speculate that the eurozone economy may be experiencing a significant slowdown, evidenced by a downward revision in GDP growth forecasts. However, investors are still awaiting additional economic data from major economies within the bloc to better gauge the trend of further rate adjustments.

Industrial production in the eurozone remained stable in October after a 1.5% decline in September. This was partly supported by a 1.7% increase in the production of capital goods, while the production of energy and consumer goods continued to trend downward. Among the major economies in the euro area, Germany saw a significant 1.1% drop in industrial production, while France experienced a modest decline of 0.2%. On the other hand, Spain reported a 1% year-over-year increase. Despite some countries showing growth in industrial production, overall concerns about the sector's slowdown persist. Weak domestic demand remains a primary factor limiting the pace of recovery in industrial output.

The ECB has decided to cut interest rates for the fourth time this year, reducing rates by 25 basis points in its most recent meeting, in line with market expectations. This decision is believed to be part of efforts to bring inflation under control, which is showing clearer signs of easing. Inflation is projected to gradually decrease to 2.4% in 2024, 2.1% in 2025, and 1.9% in 2026. Core inflation, which excludes energy and food, is also expected to decline, aiming for the ECB's 2% target in the medium term.

Despite multiple rate cuts this year, businesses still face tight financial conditions due to last year’s interest rate hikes. Companies needing additional funding are having to offer higher rates to attract investors. Similarly, household finances remain under strain due to higher loan repayment burdens. The ECB anticipates slower economic recovery, forecasting GDP growth of 0.7% in 2024, 1.1% in 2025, and 1.4% in 2026. The central bank continues to focus on achieving its 2% inflation target and adjusting monetary policy accordingly.

The eurozone economy expanded by 0.4% in the third quarter, marking the strongest growth rate in two years and an improvement from 0.2% growth in the second quarter. Household and government spending increased slightly, while trade balance pressures weighed on the overall economy due to a 1.5% decline in exports and a 0.2% increase in imports. Germany’s GDP grew by 0.1%, narrowly avoiding a technical recession. Meanwhile, France and Spain saw GDP growth of 0.4% and 0.8%, respectively. Year-over-year, GDP expanded by 0.9%, demonstrating the eurozone's resilience and potential for further growth in the future.