The European Central Bank may cut interest rates in June before the Fed, and experts say the impact on China may be limited

Reporter Tan Zhijuan reports from Beijing

The European April PMI data released a few days ago showed that the situation in the euro area is mixed, and the pressure on the manufacturing industry is still large, which has triggered market speculation that the European Central Bank is expected to cut interest rates earlier than the Federal Reserve at its June meeting.

On April 23, data jointly released by S&P Global and Hamburg Commercial Bank (HCOB) showed that the preliminary value of the overall PMI in the euro area rebounded to 51.4 in April from 50.3 in March, higher than the market expectation of 50.7, which was the second consecutive month to stand above the boom and bust line, and the growth rate was the highest in 11 months. Public opinion believes that this is mainly due to the strong performance of the service industry, while the manufacturing industry continues to be sluggish.

Earlier, the European Central Bank held a monetary policy meeting on April 11, although it decided to keep the three key interest rates unchanged, but at the same time sent a signal to ease monetary policy.

ECB Vice President Guindos also said that the fight against inflation is coming to an end, and the biggest potential threat comes from services inflation, and if there are no surprises, there seems to be a consensus on a rate cut in June. Similarly, ECB Governing Council member Makhruf also said that if the consumer price index (CPI) trend continues, the ECB may cut interest rates by 25 basis points in June.

Liu Chun, an associate professor at the Central University of Finance and Economics, told the China Business News reporter before his birthday: "Basically, judging from the current market expectations and the ECB's statement, the probability of the ECB cutting interest rates at the June meeting is relatively large. The statement of ECB Vice President Guindos also further strengthened the market's expectations for interest rate cuts. ”

In Liu Chunsheng's view, this is mainly due to three factors: first, the inflation rate in the euro area has fallen, providing room for interest rate cuts; second, although the overall economic situation in Europe has recovered, the weakness of the manufacturing industry still needs monetary policy support; third, compared with the Federal Reserve, the European Central Bank seems to be more resolute in cutting interest rates.

There is a high probability that the European Central Bank will cut interest rates in June

Judging from the Eurozone PMI data in April: on the one hand, the service sector performed strongly, of which the preliminary service PMI rose further to 52.9 from 51.5 last month, also exceeding market expectations and reaching an 11-month high, on the other hand, the manufacturing industry continued to be sluggish, with the Eurozone manufacturing PMI falling from 46.1 to 45.6, the lowest in four months, and has been in the contraction range since mid-2022.

In this regard, Chen Li, chief economist of Chuancai Securities, said in an interview with a reporter from China Business News on April 24: "The mixed weather in the European manufacturing industry in April reflects that the European economy is facing more challenges in the recovery process. The services PMI rose to 52.9 in April, the highest in nearly 11 months, and was the main support for the improvement of the overall PMI data. ”

"The service industry in Europe maintained a high degree of prosperity and grew rapidly in the first quarter of this year, which is an important pillar of the European economic recovery. In the manufacturing sector, the manufacturing PMI fell to 45.6 in April, the lowest in nearly four months. At present, the European manufacturing industry is still facing the disturbance of factors such as intensified geopolitical conflicts and slowing demand growth at home and abroad. Chen Li added.

Kristina Hooper, chief global market strategist at Invesco, also told China Business Daily: "In March, core inflation, excluding food and energy, increased by 2.9% year-on-year, while core inflation, which excludes tobacco, was 2.6%. In this trend, the ECB is expected to cut interest rates at its June meeting. ”

Inflation in the EU and the eurozone has shown signs of decline in March: Eurostat data recently released data showing that inflation in the eurozone was 2.4% in March 2024, down from 2.6% in February and 6.9% in the same period last year. The data also showed that in March 2024, EU inflation was 2.6%, down from 2.8% in February. In the same period last year, the figure was 8.3%.

As a result, Chen Li told reporters: "There are still many uncertainties in the prospects for inflationary pressure and economic recovery in Europe, and the increased uncertainty of the Federal Reserve's monetary policy will have an impact on the monetary policy of the European Central Bank. ”

The impact on China may be limited

What will be the impact of the ECB's rate cut on global markets?

Chen Li told reporters that if the European Central Bank starts to cut interest rates in June, first, it may lead to the flow of capital from Europe to other countries, and capital flows may affect the stability of the global financial market in the short term; second, to avoid competitive currency depreciation to maintain the stability of the financial market, or trigger other central banks to adjust monetary policy; third, interest rate cuts may promote economic growth in the euro area, which will have a positive impact on the global economy; and fourth, it may have an impact on the global inflation level, which may further aggravate global inflationary pressures.

Bai Wenxi, vice chairman of the China Enterprise Capital Alliance, also told China Business News: "The European Central Bank's interest rate cut may have a certain impact on the global economy, especially exports and investment in the euro area." At the same time, this may also trigger a global monetary policy adjustment, which will affect global financial markets. ”

Liu Chunsheng also believes that the impact of the ECB's interest rate cut on the global economy is complex and multifaceted: on the one hand, the interest rate cut will help enhance the growth momentum of the European economy and have a certain positive effect on the global economic recovery; on the other hand, the interest rate cut may also lead to changes in global capital flows and have a certain impact on emerging market countries.

What impact will this have on China? Experts interviewed generally agreed that the impact on China may be limited.

"For China, the ECB's interest rate cut may trigger international capital flows and exchange rate fluctuations, which may have a certain impact on China's import and export markets and financial markets in the short term," Chen said. However, on the whole, the impact of the ECB's interest rate cut on China's economy and financial markets is relatively limited. ”

Liu Chunsheng also said: "For China, the ECB's interest rate cut may have the following impacts: first, the interest rate cut may increase Europe's import demand and have a certain positive effect on China's exports; second, the interest rate cut may lead to a reallocation of global capital, and some capital may flow to emerging market countries, including China; finally, the interest rate cut may also have a certain impact on the RMB exchange rate, which may appreciate against the euro, and it is necessary to pay close attention to the impact of exchange rate changes on China's economy." ”

(Editor: Hao Cheng Review: Zhang Rongwang Proofreader: Yan Jingning)