UBS Economics-European Economic Comment _ECB More confident on economic r...-118573577

ab30 October 2025Global ResearchEuropean Economic CommentECB: More confident on economic resilience Rates on hold, with risk of further cut arguably smaller than assumed before As firmly expected, the ECB kept rates on hold, with the depo rate at 2% (i.e. broadly neutral), and reiterated that it sees itself "in a good place". While Ms Lagarde's introductory statement appeared to be quite detailed on upside and downside risks, the ECB acknowledged today's better-than-expected Eurozone Q3 GDP numbers (0.2% q/q), highlighted resilient corporate investment activity, and argued that some of the recently-mentioned downside risks had receded somewhat (US-EU trade frictions, Middle East, US-China relations). Therefore, to us, the ECB appeared a bit more confident on the Eurozone's economic resilience than before. According to our base case scenario, the ECB will not cut rates further, given not least the sizeable fiscal stimulus in support of defence (EU) and infrastructure (Germany), which should become increasingly visible from early 2026. That said, we still see the forecast risk to the rate outlook as skewed to the downside for the coming months – but following today's meeting, we regard the likelihood of a cut as somewhat smaller than before. By the time of writing, the markets were pricing only -1.2bps for December and a cumulative -11.6bps by late 2026, broadly unchanged from earlier today. Digital euro - ECB keen to move forwardIn the press conference, Christine Lagarde reiterated the ECB's determination to launch a digital euro. Following the conclusion of the 2-year "preparation phase", the ECB has now decided to move to the next phase of more specific technical preparations for a digital euro. The ECB reiterated that "[t]he ECB Governing Council‘s final decision on whether to issue a digital euro, and on what date, will only be taken once the legislation has been adopted."But it added: "Under the assumption that European co-legislators will adopt the Regulation on the establishment of the digital euro in the course of 2026, a pilot exercise and initial transactions could take place as of mid-2027. The whole Eurosystem should then be ready for a potential first issuance of the digital euro during 2029." For more detail on the ECB's digital euro project, see our report: The ECB and the digital euro: Decision time approaching. ETS2 - implementation spread over 2027 and 2028?In the next meeting on 18 December, the ECB will provide updated macroeconomic projections, which will cover 2028 for the first time. A matter of uncertainty is to what extent the planned introduction of the ETS2 will affect the ECB's inflation forecast for 2027 and 2028. In today's press conference, Ms Lagarde indicated that, following the latest political signals, the introduction might be smoothened somewhat, with the impact not necessarily all occurring in 2027, but being spread over 2027 and 2028. Deep Speak: Using AI to measure what the ECB says S