By David Barwick – FRANKFURT (Econostream) – Most participants in the European Central Bank’s latest Survey of Professional Forecasters expected a further interest rate increase, while cutting their euro-area growth forecast for this year, results released Friday showed.

The modal forecast for the deposit facility rate rose to 2.50% for the fourth quarter of 2026 and the first quarter of 2027, up from its current level of 2.25%. Forecasters generally expected the rate to peak at around 2.50% around the turn of the year before gradually declining toward 2% over the medium term.

Respondents lowered their 2026 GDP growth forecast by 0.4 percentage points to 0.6% and their 2027 forecast by 0.1 percentage points to 1.2%. They continued to expect growth of 1.3% in 2028.

Headline inflation forecasts were unchanged at 2.7% for 2026 and 2.0% for 2028, but were raised by 0.1 percentage points to 2.2% for 2027. Longer-term inflation expectations remained at 2%.

Core inflation was revised up by 0.2 percentage points to 2.4% for 2026, but remained unchanged at 2.2% for 2027 and 2.1% for 2028.

Forecasters estimated that indirect effects from the Middle East energy shock would add around 0.2 percentage points to inflation in 2026, while second-round effects would remain below 0.1 percentage points. The effects were expected largely to disappear by 2028.

Separately, the ECB’s Consumer Expectations Survey showed that median expectations for inflation over the next 12 months fell to 3.0% in June, from 3.5% in May. Three-year expectations declined to 2.8% from 2.9%, while five-year expectations remained unchanged at 2.4%.

Consumers’ expectations for economic growth over the next 12 months became less negative, rising to -1.4% from -1.7%, while their expected unemployment rate declined to 11.2% from 11.3%.