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Growth in European steel industry due to ECB rate cuts will take time - MEPS

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MEPS analysts suggest the European Central Bank's first interest rate cut will do little to revive the region's ailing steel industry in the near future.

Growth in European steel industry due to ECB rate cuts will take time - MEPS

The European Central Bank (ECB) announced on June 6 that its Governing Council had decided to cut its key interest rate by 0.25 percentage points to 3.75%. This is the first cut since 2019, which will end nine months at a rate of 4%, putting pressure on the financing of key steel-consuming sectors such as construction and automotive.

Respondents to MEPS International's steel market survey for the monthly magazine The European Steel Review cited lower interest rates as a key driver of improved economic confidence in recent months.   Today's announcement is likely to improve market sentiment and any decline in borrowing costs could lead to a rise in activity.

However, MEPS market analyst Jonathan Carruthers-Green said those expecting an immediate rise in activity following the interest rate cut will be disappointed. Carruthers-Green described the move as “welcome news” but added: “This is only a small reduction in the headline rate. It could take up to nine months for the steel industry to see any positive effects.  

“Our latest conversations with market participants indicate that the recent lull in activity is likely to continue. Market sentiment may be slightly higher than in May, but demand and prices remain weak.”

Inflation will remain “above target”

The ECB said inflation fell by more than 2. 5 percentage points since the Governing Council met in September 2023, adding that the inflation outlook had "improved markedly" during that time.  

Annual inflation in the eurozone is expected to rise from 2.4% to 2.6% in May 2024, according to a snapshot estimate from Eurostat, the European Union's statistical office. However, the rate has remained below 3% since October 2023 and well below the peak of 10.8% reached in October 2022.

The ECB warned in a statement today that inflation is likely to remain above target 2% next year, despite the relative stability of recent months. Both headline and core inflation have been revised upward for 2024 and 2025 compared to March forecasts, it said.  

Headline inflation is expected to average 2.5% in 2024, 2.2% in 2025 and 1.9% in 2026. Core inflation (excluding energy and food) is expected to average 2.8% in 2024, 2.2% in 2025 and 2.0% in 2026. Meanwhile, economic growth is expected to accelerate to 0.9% in 2024, 1.4% in 2025 and 1.6% in 2026.

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