ECB’s Robert Holzmann warns rate cuts not guaranteed in 2024

Threats stemming from lingering inflation will prevent the European Central Bank (ECB) from lowering interest rates this year — even as a recession can no longer be ruled out, according to governing council member Robert Holzmann.

The euro zone economy has disappointed recently and will probably prove officials too optimistic once fourth-quarter results are released, Mr Holzmann said in an interview in Davos, Switzerland, where he’s attending the World Economic Forum.

At the same time, geopolitical conflicts — like the one in the Middle East — risk disrupting supply chains and energy markets, keeping pressure on prices that the ECB can’t ignore.

“The geopolitical threat has increased because what we saw until now by the Houthis — I think it’s not the end, it might be the overture to something much more broad based, which will impact the Suez Canal and increase the prices there,” Mr Holzmann said on Monday. “We should not bank on the rate cut at all for 2024.”

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Inflation came within touching distance of the ECB’s 2 per cent target late last year, inviting speculation about when policymakers would reverse the biggest monetary-tightening campaign since the introduction of the euro 25 years ago. Traders are betting on six quarter-point cuts, starting in April, while economists anticipate a first of four moves in June.

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Mr Holzmann reiterated a point made by colleagues including ECB president Christine Lagarde and chief economist Philip Lane — that it’s “much too early” to talk about trimming borrowing costs.

“Once such a date would be set, it would trigger immediately a dynamics which we cannot control,” said Holzmann, who also heads Austria’s central bank. “And with all the knowledge we currently have, it would not be honest to do it because we don’t know how inflation will develop.”

Bundesbank president Joachim Nagel agreed that it’s premature to discuss monetary easing, suggesting no movement before the summer.

“Maybe we can wait for the summer break or whatever but I don’t want to speculate,” he said in Davos, highlighting that officials will remain data-dependent. “I think it’s too early to talk about cuts.”

The ECB sees headline inflation hitting 2 per cent in the second half of 2025, while underlying price pressures are expected to remain above that threshold through end-2026.

Mr Holzmann described the latest trend as a “sideways movement” and warned that it may continue. Wage demands haven’t yet come down and some of the latest bargaining agreements in Germany, Austria and the Netherlands point to “quite high” increases.

That’s despite the weakening economy. Germany on Monday reported a contraction of 0.3 per cent in the fourth quarter and a decline in output of the same magnitude for the whole of 2023.

The governing council’s assessment has become “mildly more sceptical” over the past months, Mr Holzmann said. Fourth-quarter data for the euro zone will be published on January 30th, and the Austrian said he fears “we’ll also be slightly less optimistic” afterwards.

While he doesn’t anticipate the region to fall into a “real recession”, it could succumb to one “triggered by external effects easily”.

“If geopolitical risks lead oil prices going up, gas prices would shoot up, this would also hit in a number of industries which are already hit. Perhaps even the services industry,” he said. “Then, a recession is not improbable.” — Bloomberg

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