The European Central Bank cut interest rates on Thursday as policymakers grappled with heightened economic uncertainty, particularly from President Trump’s chaotic trade policies.
Policymakers, who set rates for the 20 countries that use the euro, lowered their key rate a quarter point to 2.25 percent. It was the seventh consecutive cut since June as inflation has continued to slow and the economic outlook for the region has darkened. The region’s largest economy, Germany, which is heavily oriented toward exports, faces the dual challenges of tariffs on goods sent to the United States and a weaker global economy weighed down by trade uncertainty.
Mr. Trump has raised tariffs on nearly all imports to the United States from most countries to 10 percent, increasing the specter of a global trade war. There are also higher tariffs on certain goods like cars and steel, while a trade war with China has pushed import levies between each country above 100 percent.
“The euro area economy has been building up some resilience against global shocks, but the outlook for growth has deteriorated owing to rising trade tensions,” policymakers said in a statement on Thursday.
The view of Europe’s economy has shifted quickly. A month ago, traders were evenly split on whether eurozone policymakers would hold or cut rates. Last month, policymakers noted that increased European fiscal spending, particularly on defense, could support the economy and that consumer spending should pick up because of lower inflation.
But that optimism has rapidly given ways to fears that the region is at risk of recession if business investment and consumer spending is suppressed by uncertainty.
Policymakers said on Thursday that it was likely that confidence among businesses and households would fall, while “the adverse and volatile market response to the trade tensions” would probably tighten financing conditions, which could make it harder to get access to loans. “These factors may further weigh on the economic outlook for the euro area,” the statement said.
Lawmakers in some countries, like Italy and Spain, are trying to shield companies from the trade war with extra government spending. But still, economists have cut their growth forecasts for the region.
Last month, Europe’s policymakers said that the inflationary impact of higher tariffs was uncertain. Escalating trade tensions could lead to a weaker euro, more expensive imports and upward pressure on inflation. Or lower demand for exports and cheaper goods redirected to Europe from the United States could put downward pressure on inflation.
More recently, analysts say there is growing evidence that trade uncertainty will decrease pressure on European prices rather than raise them, at least in the short term.
“The sharp fall in commodity prices combined with the strong appreciation of the euro is likely to send eurozone inflation below 2 percent,” Angel Talavera, the head of Europe economics at Oxford Economics, wrote in a research note this week.
The annual inflation rate in the eurozone averaged 2.2 in March, down from 2.3 percent in February. Inflation in the services sector, which had been sticky, slowed to 3.5 percent, the lowest since mid-2022.
