08:38 AM EDT, 10/01/2024 (MT Newswires) -- With updated growth and inflation eurozone forecasts, including lower energy price assumptions, weaker-than-expected Q3 inflation and worryingly weak business confidence, Societe Generale thinks the European Central Bank will cut rates again on Oct. 17 to avoid falling behind the curve and keep optionality for the December meeting.

The outlook remains highly uncertain, and the bank gives its main scenario, where strong private sector fundamentals result in resilient activity, around a 60% probability. The risk of weak gross domestic product growth and lower-than-expected inflation has increased -- SocGen assigns it a 30% probability -- while the probability that activity picks up above potential over the coming year remains small (10%).

This should give the ECB greater confidence that labor market conditions will ease and that wage growth will be more supportive of price stability next year, wrote the bank in a note to clients.

SocGen has added one rate cut -- in October -- to its previous quarterly path, reaching a terminal, and neutral, rate of 2.5% a quarter earlier in June 2025. With that, the bank remains above the market pricing, mainly as it believes labor market conditions may stay tight despite weak activity for structural reasons, while there is also a still significant stimulative impact coming from the balance sheet.

While cutting rates in October was not in the ECB's previous plan, SocGen thinks the latest data and lower forecasts will convince governors of the need for an October cut, especially as the ECB could otherwise be forced to take bigger action in December.

By the same token, the data should decide if there is a need for another cut in December or if rates should stay on hold, added the bank.