According to ECB Survey, Profit Margins Under Pressure in the Eurozone

According to the quarterly survey results published by the European Central Bank (ECB), companies in the Eurozone expect their revenues to increase this quarter; however, due to wage increases outpacing selling prices, pressure on profit margins continues. The decline in margins of companies that have exhibited unusually high profit margins in recent years raises concerns about workforce reductions.

The ECB's "Survey on the Access to Finance of Enterprises" reveals that cost pressures are still broadly felt across all business sizes. Among approximately 13,000 firms surveyed, the majority, which employ fewer than 250 workers, reported a deterioration in their profits compared to the previous survey.

Expectations for rising sales prices are increasing. Companies expect a 3% increase in selling prices over the next 12 months, while a 3.5% rise in wages is anticipated. This presents a significant divergence from the ECB's 2% inflation target. Furthermore, firms expect inflation to be at 2.9% in one, three, and five years.

While firms report a decrease in the need for bank loans in the third quarter, they indicate that securing credit has become easier compared to three months ago. Nevertheless, they express less optimism about the availability of bank loans over the next three months.

Deutsche Bank updates its ECB terminal interest rate forecast. Deutsche Bank (DB) has announced that it has revised its base scenario forecast for the ECB's terminal interest rate to 1.50%. The firm had previously anticipated a rate reduction to 2.25%. This represents a 75 basis point decrease from the earlier forecast. The potential implementation of Trump tariffs is viewed as a significant factor that could pressure the Eurozone economy next year, which could negatively impact the ECB's interest rate outlook.