What Did The European Central Bank Tell Us?

The Real Estate Espresso Podcast

What Did The European Central Bank Tell Us?

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What Did The European Central Bank Tell Us?

Welcome to The Real Estate Espresso podcast. Your morning shot of what’s new in the world of real estate investing. I’m your host Victor Menasce. Right now, the public spat between Elon Musk and President Trump is catching headlines. It’s sensational, and it makes for great television. It’s reality TV at its best. As real estate investors, we frankly don’t care about that. We’re concerned with economic growth in contraction, real expenses, and the cost of capital.

When the economy’s growing, and employment levels are strong, then residents pay their rent. When the economy is shrinking, and layoffs are rampant, then delinquencies rise and landlords experience economic stress. On today’s show, we’re looking at the economy, trying to figure out if the global economy is growing or shrinking, and by extension, how this will affect the economy in North America.

Thursday this week, the European Central Bank announced another quarter point rate cut, while at the same time signaling that they’re nearing the end of their rate cutting. So why is the European Central Bank cutting rates? Conventional wisdom is that you raise rates to fight inflation, and you lower rates to stimulate the economy and encourage more hiring. European Central Bank’s Christine Lagarde stated in Thursday’s press conference that inflation in May declined to 1.9% from 2.1% in April. She sees inflation holding at or below the mid-range target of 2%.

Inflation is forecast to average 2% in 2025, 1.6% in 2026, and 2% in 2027. Lagarde talked about her forecast for economic growth of 0.9% this year, 1.1% next year, and 1.3% in 2027. These are very anemic numbers. Trade uncertainty is expected to weigh heavily on international trade in the short term, but the increases in defense spending are expected to provide sustained economic growth over the next few years.

In her remarks, she mentioned that the first quarter was surprisingly strong. This was the flurry of activity to pull orders ahead of the announced April 2nd tariff deadline. The expectation is that the strength in Q1, will be offset by the corresponding weakness in the remainder of this year.

The German government has been clear that they’re expecting zero growth this year and next year. And notably, Germany is the economic engine of Europe, accounting for a quarter of the entire EU economic output.

So let’s break this down. Europe has been relying on the US for a disproportionate level of their defense spending. Europe spent 1.9% of GDP on defense in 2024, which is expected to rise this year and next. Historically

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