The US tariff announcement has sent tremors through global markets and forced global investors to re-evaluate the economic outlook for this year and beyond. This has now increased the odds of an interest rate cut on April 17 at the European Central Bank’s next meeting, according to market pricing.

As the ECB navigates the region’s path out of the inflationary era, an imminent trade war looks set to weigh on the eurozone’s economic recovery. The impact on inflation is less clear; while cheap goods from Asia may drive some prices down, retaliatory tariffs on the US will lift others.

Markets are currently pricing in 0.25 percentage point ECB rate cuts in both April and June, which would bring the deposit rate down to 2% by the end of the second quarter, with a third cut possible later this year. ECB officials were split at their March meeting, according to an account published in April, between cutting rates again in April or pausing. Their next decisions are due on April 17 and June 5.

Will the ECB Cut Rates on April 17?

“The just-released minutes of the ECB’s March meeting confirm increasingly diverging views on when to cut interest rates again,” said Carsten Brzeski, global head of macro at ING on April 3. This week’s tariff announcements have clearly increased the chances of a rate cut in two weeks.

“The call for a pause was stronger a few weeks ago when fiscal stimulus expectations brightened the outlook for eurozone growth (and inflation). With tonight’s negative trade and confidence shock and little prospect of quick negotiations, the chances that the ECB will want to push the policy interest rate further into neutral territory in two weeks have clearly increased.”

Deutsche Bank said that the ECB will likely cut rates more decisively than previously expected. China’s exports, blocked from the US by new tariffs, will be redirected to Europe, increasing price competition for European manufacturers. This import glut is likely to be disinflationary, pushing down prices in the eurozone, said Robin Winkler, chief economist at Deutsche Bank Research.

“This means both monetary and fiscal policy would have clear signals to offset this dynamic,” he said, adding that Germany’s new government will likely try to frontload as much fiscal easing as it can.

How Many More Rate Cuts in 2025?

Berenberg Bank’s economists still expect only one more rate cut of 0.25 percentage points by the ECB in the second quarter, before holding rates steady and raising them again to 3% in 2027. However, the ECB could well go for one or more additional 25 basis point move to address the potential damage to the economy, Berenberg said on April 3.

Carsten Roemheld, capital market strategist at Fidelity, said: “For central banks, the situation has become significantly more challenging due to recent developments, as the high tariffs and the potential for further escalation among trading partners complicate the analysis of growth and inflation effects.”

“This is particularly problematic for Europe, where the stimulative effects of fiscal packages from Germany and the EU also need to be factored in. However, since these measures will only unfold their full impact over time, growth concerns are likely to dominate in the short term,” he added.

“We therefore continue to believe that the ECB will proceed with its rate-cutting path over the course of the year, due to still-weak growth expectations and moderate inflation dynamics. We expect the target level for the deposit rate to be around 1.75% by year-end.”

Michael Field, chief European market strategist at Morningstar, still expects the bank to pause in its next session on April 17.

“The escalating trade war will give the bank pause for thought, with the most recently announced round of tariffs threatening to upend European economic growth. In these now uncertain times it would be prudent for the bank to pause any further cuts and let the dust settle on the situation.”

Current ECB Key Interest Rates

The ECB began its rate-cutting cycle in June 2024, paused in July, and resumed its rate changes in September, October, December, and January. As of March 12, the three ECB key interest rates stand at:

• Deposit facility rate: 2.50%
• Main refinancing rate: 2.65%
• Marginal lending facility: 2.90%

When Are the Next ECB Meetings in 2025?

• April 17, 2025
• June 5, 2025
• July 24, 2025
• Sept. 11, 2025
• Oct. 30, 2025
• Dec. 18, 2025

Trump Tariffs: Europe Prepares a Response

On April 2, President Donald Trump unveiled a series of sweeping tariffs, including a baseline 10% duty on all imports, escalating to 20% on EU goods and up to 50% on Chinese products. These measures come on top of a 25% levy on European auto exports announced last month.

EU Commission President Ursula von der Leyen said: “The EU is prepared to respond... We are already finalizing a first package of countermeasures in response to tariffs on steel. We are now preparing for further countermeasures, to protect our interests and our businesses if negotiations fail.”

Brussels is expected to impose duties on up to EUR 26 billion of US goods in mid-April.

Lagarde Calls for European Unity

ECB President Christine Lagarde appealed for unity in the face of shifting global dynamics.

“I have no doubt that we can unleash a ‘European moment’ - if leaders are willing to seize it,” she said in speech on April 2 in Dublin before the tariffs were announced. “That means integrating our capital markets, allowing Europe’s ample savings to fund our much-needed investments.” This also means removing internal barriers that stand in the way of the single capital market, she said.

Luis de Guindos, vice-president of the ECB, maintained a cautious tone: “Uncertainty surrounding the inflation outlook remains high, mainly on account of increasing friction in global trade.”

While headline inflation is gradually falling, from a rate of 2.2% in March from 2.3% in February, the new trade tensions could push inflation both ways, depending on whether supply or demand effects dominate.

How Is the European Growth Outlook Changing?

ECB staff now forecasts GDP growth of just 0.9% in 2025. While inflation is still expected to converge toward 2% in 2026, this outlook is increasingly fragile. The ECB’s March accounts highlighted the unprecedented level of uncertainty, with trade policy singled out as an unmeasurable and deeply unpredictable risk.

Germany stands at the epicenter of the shock, with exports to the US accounting for 3.7% of German GDP.

“There is no question that the tariff announcement is bad news for the German economy,” said Winkler of Deutsche Bank Research. Italy and the Netherlands, with strong capital goods sectors, are also vulnerable, the ECB noted. Meanwhile, high uncertainty continues to depress investment plans, according to the ECB’s accounts.

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