By Indradip Ghosh and Jonathan Cable

BENGALURU/LONDON (Reuters) – The European Central Bank (ECB) will extend interest rate cuts at least until July to support the weak euro zone economy, which faces threats from potential U.S. tariffs, according to economists polled by Reuters.

U.S. President-elect Donald Trump is set to return to the White House on Monday. His economic plans, including at least 10% tariffs on all imported goods, have shaken financial markets, raising concerns about further challenges for the euro currency union.

ECB Chief Economist Philip Lane stated that while the ECB can ease policy further, it must avoid causing a recession and must address rising inflation.

The two largest economies in the bloc are facing political instability and sluggish activity. Germany’s economy contracted by 0.2% last year, while a PMI survey indicated a fragile state for the euro zone economy as it ended 2024.

Carsten Brzeski, global head of macro at ING, warned that the political situations in France and Germany could hinder Europe’s investment and consumption, making it less responsive to Trump.

The ECB’s Governing Council has initiated easing since June, executing four interest rate cuts in 2024, with several more cuts anticipated this year.

All 77 economists surveyed from January 10-15 predict a 25 basis point reduction in the deposit rate to 2.75% by January 30. A 60% majority predict three additional cuts by mid-year, lowering the rate to 2.00%. Others have varied predictions, ranging from 1.75% to 2.50%.

The median poll showed the rate is expected to remain at 2.00% until at least mid-2026. A significant number of economists believe the deposit rate could fall below 2.00% by the end of the year, while others predict it may increase.

Markets anticipate a cut this month and approximately 90 basis points in total this year, contrasting sharply with the outlook for the U.S. Federal Reserve.

Chris Scicluna of Daiwa Capital Markets Europe pointed out that U.S. tariffs are already affecting investment in the euro area, contributing to a weak growth outlook, projecting growth across the euro zone at 1.0% this year and 1.2% next year.

While euro zone inflation jumped to 2.4% last month, it is expected to decline to the ECB’s target of 2.0% in Q2 and stay there until at least mid-2026. Yet, many economists believe inflation may exceed expected levels.

Germany’s economy growth is forecasted at 0.4% for this year and 1.0% in 2026, with significant downgrades from previous predictions, while France’s growth is expected to slow to 0.8% from 1.1% last year, with a forecast of 1.1% in 2026.

(Other stories from the Reuters global economic poll)