The European Central Bank has taken drastic action, cutting its main interest rate to 2%, in an apparent effort to avert a deepening economic crisis within the eurozone. This eighth quarter-point reduction in a year highlights the severity of the challenges faced by the 20-member bloc, largely stemming from the disruptive impact of global trade wars.
Economic growth has ground to a near halt across the eurozone, with its largest economies struggling to maintain any significant momentum. The bleak forecasts for the coming year have compelled the central bank to make borrowing dramatically cheaper, hoping to reignite investment and prevent a more severe downturn.
The ECB’s decision also follows a dip in eurozone inflation below its target. While trade uncertainties are a major concern, the central bank projects that increased government spending on defense and infrastructure will offer some mitigating effect. ECB President Christine Lagarde, while expressing caution, emphasized the resilience of the labor market and strong private sector finances as key strengths in the face of global volatility.