A new report from Oxford Economics projects the euro zone’s neutral interest rate will fall to 1.9 percent this year, from 2.2 percent in 2023, and will drop to 1.5 percent by 2026, allaying fears of naggingly high interest rates.
Oxford Economics anticipates that as inflation expectations normalize, interest rates will fall.
An aging European population and weak productivity growth (0.7 percent year-over-year in recent years) will contribute to keeping the real neutral rate low and negative until at least 2030, though Oxford Economics projects it will rise from –1.5 percent in 2023 to –1.3 percent this year and –0.4 percent by 2030.
Oxford Economics states in its report that the European Central Bank (ECB) will enact policy rate cuts quickly this year to avoid overtightening of the economy, which will go hand-in-hand with the weakening neutral rate.
Euro zone countries have experienced more demographic change than the United States, due to rising
