Synopsis:

Goldman Sachs expects the ECB to cut rates by 25bp at its June 5 meeting, while revised growth and inflation projections will be the key focus. Despite recent core inflation surprises, broader disinflation trends and a stronger euro support a more dovish inflation outlook.

Key Points:

• Rate Cut Expected: A 25bp rate cut is widely anticipated, with minimal changes to forward guidance—policy to remain "data-dependent" and assessed "meeting by meeting."

• Growth Outlook:

  • 2025 growth projection likely unchanged at 0.9% (Q1 strength offsets weaker outlook).

  • 2026 forecast to be revised down to 0.9% (from 1.2%).

  • 2027 forecast to rise slightly (+0.1pp) on more expansionary German fiscal policy.

• Inflation Forecasts Downgraded:

  • Core and headline inflation in 2026 seen 0.2pp lower, at 1.8% and 1.7% respectively.

  • Reasons include slower wage growth, a stronger EUR, and lower energy prices.

• Lagarde’s Messaging: Likely to emphasize both the softer outlook and increased global trade uncertainty, with new scenario modeling highlighted during the press conference.

Conclusion:

While the June rate cut is already priced in, Goldman expects the ECB's updated projections to reinforce its dovish stance. With slowing inflation and weak growth momentum, the path remains open for another 25bp cut in July to a terminal rate of 1.75%.