The European Central Bank (ECB) cut interest rates Thursday, lowering borrowing costs for the second time in recent months as inflation slows and Europe’s economy stumbles.
The move takes the benchmark rate in the 20 countries that use the euro to 3.5%, from 3.75% previously.
The ECB cut rates for the first time in five years in June, but kept them unchanged at its last meeting in July. Inflation has since fallen further, dropping to 2.2% in August, its lowest level in three years and close to the central bank’s 2% target. Wage growth, keenly watched by ECB officials, also eased in the second quarter.
At the same time, fears about the eurozone’s economy are resurfacing. The region only narrowly avoided a recession last year and, although growth has since returned, it slowed in the latest, April-to-June quarter. Worryingly, output in the eurozone’s biggest economy, Germany, shrank unexpectedly during that period.
An uptick in activity in Europe’s services sector last month, helped by the Olympic and Paralympic Games in Paris, could prove short-lived.
A recent survey of manufacturing and services businesses highlighted “economic fragility across the euro area as new orders, employment and business confidence deteriorated,” according to S&P Global and Hamburg Commercial Bank.