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Declining external demand is starting to spill over to domestic spending, Deutsche Bank economists said. They previously predicted borrowing costs would rise in March 2020. Markets are pricing the first 10 basis-point hike in the deposit rate for June next year.
Policy makers will need to assess whether the current slowdown is transitory or persistent, after unexpectedly weak indicators have raised concerns over the economic outlook, the researchers said. A number of risks, including a “no deal” Brexit or a trade-war escalation, could yet tip the euro area into a recession if they were to materialize, they said.
As recently as two weeks ago, Deutsche Bank economists highlighted the possibility of an earlier one-off increase in the ECB’s deposit rate, which is currently negative and considered a drag on banks’ profitability. The observation came after ECB President Mario Draghi said in December it was an issue officials are “monitoring carefully.” The economists say the tone at his last press conference in January was “more balanced.”