Publications

The recent appreciation of the euro against the dollar—more than 10% since the lows at the beginning of the year—has shifted the price competitiveness of Spanish companies and the purchasing power of households.

Global uncertainty, especially on geopolitical and commercial issues, has been creating a complex and atypical environment for Latin America in 2025. This has led to high market volatility, caution from monetary policy, and broader than normal ranges when forecasting economic variables.

The most interesting thing about last week’s ECB meeting was not the decision made, but the promise of hints as to what it might do next. Ultimately, the 25-basis point cut in the main reference rates had already been widely priced in by analysts and markets.

The ECB cut rates to 2% with broad consensus and signaled the rate-cutting cycle may be nearing its end. While confident in the inflation path, high geopolitical and trade uncertainty keeps future decisions open.

GDP growth is expected to slow to 1.6% in 2025 and 1.8% in 2026, following three years of around 3% growth. The slowdown will be driven by tighter monetary conditions, a weaker fiscal impulse, and a less favorable global context, though the primary sector and labor market resilience will provide support.

Profitability and NIMs of the sector have started to improve in 4Q24, which will continue with the rate-cutting cycle of the CBRT. The monetary stance remains to be supported with the macro-prudential measures. We expect the ROE of deposit banks to barely improve to 30% by end 2025 from 28.4% at the end of 2024.

Diverging monetary policy between China and the US remains after Trump’s victory, leading to a longer time China-US policy rate reversion.

The euro/dollar pair has fallen sharply from the highs seen toward the middle of 2024 (1.12) to reach its current level of 1.04, representing a depreciation of 8%.