MNI SOURCES: No Significant Shift Seen In ECB Dec Projections

The European Central Bank’s December projection round to be unveiled at the 18 Dec. Governing Council meeting is not expected to depart significantly from September’s figures, with communication as 2026 dawns balancing hawk-dove differences by seeking to reinforce two-way risks around the 2.0% policy rate, Eurosystem sources have told MNI.

Policymakers could debate a tweak to the statement language, as some governors feel the need to stress the meeting-by-meeting (MBM) message and avoid a perception of a de facto return to the ‘below but close to 2%’ regime, highlighting again the symmetric nature of the current target, giving the ECB margin to react.

“It is important to stress this because otherwise the market may expect a signal from us to cut in the future. Markets do not currently have the sense that we are truly MBM,” a Eurosystem source said.

FLEXIBLE RESPONSE

While inflation risks are generally perceived as more balanced, a significant number of policymakers continue to see them tilted to the downside and believe the Governing Council needs to remain flexible and be ready to react quickly in case of persistent inflation undershooting.

“We must be careful not to box ourselves in with language. Talk of a higher bar to cuts somewhat diminishes the meeting-by-meeting message,” one official noted, stressing that data needed to be taken on board equally, whatever the starting point.

“If we are too comfortable and don't move, that could be risky and we could end up being too late. Markets have to see a clear reaction function if there is a forecast of a persistent undershoot,” another Eurosystem official noted.

The symmetric, meeting-by-meeting communication push is viewed more urgently by policymakers seeing inflation risks tilted to the downside, while those who see the a hike likelier than a cut as the next move prefer to emphasise the data-dependent approach. 

The latter camp stress the resilience of Eurozone growth but, at around 1%, there are those among the former who view such as description as ‘a stretch’. There is broad agreement that the German fiscal contribution to Eurozone growth through its defence and infrastructure investment will be ‘a slow burn’.

CHINA CHALLENGE

Anxiety is intensifying about a growing negative impact on the Eurozone economy from Chinese competition. While this factor is not seen as new, the potential implications do cut across the hawk-dove spectrum. 

Much of 2025 had policymakers worrying that China would seek to divert goods originally designed for the U.S. market to the EU, further weighing on goods price inflation. However, the challenge from Chinese manufacturers is spreading into third country markets, making life even more difficult for European exporters already struggling to compete in China and in the U.S. under the Trump tariff regime.

“(China) can quickly take market share from us. In fact, we are already losing ground in industries that are important to our economies, and this can only intensify,” one source said. Another referred simply to the China ‘threat’ while a third who referred to the ‘China effect’ said it was of one of many geopolitical uncertainties that grow in relevance at the 2028 policy horizon.

WELCOME TO 2028

Next week will see the 2028 inflation projections published for the first time and they could be influenced by the shift of the EU’s new Emissions Trading System 2 (ETS2) that -- subject to clearance through the European Parliament -- has been delayed until 2028 and will account for around 0.3 percentage points off headline inflation.

Energy costs are modestly lower than at the time of the September round and the euro is little changed, which will weigh on inflation projections at the margin. However, that will be largely balanced by the modestly higher spot data in October and November.

“The 2028 projections will be important in framing the debate, but I think for now will not be key in decision making,” one official said, although noting if projections show significant undershoots in 2026 and 2027 it would help build the case for a further cut.

An ECB spokesperson declined to comment.