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As European economy deteriorates, ECB needs to be more aggressive

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Good morning. The European Central Bank is clearly going to need to get far more aggressive in its easing campaign as the continental economy, led by the underperformance of Germany and France, slips back into pull of recession’s gravity.

The ECB should now consider a 50-basis point cut at its next meeting on Dec. 12.
Weak PMI data published Friday morning caused the euro to fall sharply against the U.S. dollar and at one point was trading below 1.04 euros in the early-morning session. That decline caused the spread between the benchmark U.S. 10-year yield and the German 10-year bund to increase to 213 basis points.

Euro vs. dollar

A combination of growth and interest rate differentials, expectations of expansionary fiscal policy in the U.S. and higher tariffs imposed by the U.S. next year will all drive the euro to parity against the dollar in the near term.

A weaker euro, a lower policy rate and German fiscal firepower—Germany has a current account surplus of 225 billion euros—will be a necessary part of a policy mix next year as European policymakers seek to put a floor under its rapidly deteriorating economy.

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About Joseph Brusuelas

@JoeBrusuelas

Joe Brusuelas, “chief economist to the middle market,” is the preeminent voice championing issues and policies facing midsize companies in the United States and around the world. An award-winning economist, Brusuelas has more than 20 years’ experience analyzing U.S. monetary policy, labor markets, fiscal policy, international finance, economic indicators and the condition of the U.S. consumer.

A member of the Wall Street Journal’s forecasting panel and the UCLA Anderson School of Management's Board of Directors, Brusuelas regularly briefs members of Congress and other senior officials regarding the impacts of federal policy on the middle market and the factors by which middle market executives make business decisions. He also frequently offers his insights on the U.S., Canadian and global economies in the financial media. In 2020, he was named one of the 100 most influential economists by Richtopia. In December 2023, Brusuelas and the economics team were recognized on Bloomberg's list of Best Bond Forecasters after correctly predicting where the benchmark Treasury would end the year.

Before joining RSM in 2014, Brusuelas spent four years as a senior economist at Bloomberg L.P. and the Bloomberg Briefs newsletter group, where he co-founded the award-winning Bloomberg Economic Brief. Earlier in his career, he was a director at Moody's Analytics covering the U.S. and global economies for the Dismal Scientist website. He also served as chief economist at Merk Investments L.L.C. and chief U.S. economist at IDEAglobal.

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