Euribor could drop to 2.5% next year as Spain drives economic growth in bloc 

INTEREST rates in the Eurozone could fall to 2.5% next year, having closed August 2024 on 3.75%, according to latest research.

The recently-released report by S&P Global Ratings predicts the lower Euribor rate will come off the back of increasing growth in economies that share the common currency, particularly in Spain and France.

For 2024 as a whole, the Eurozone's GDP is expected to have grown by 0.8%, rising to 1.3% in 2025, as consumer spending and investment increases.

Weaker growth is forecast for Germany this year, but Spain and France are likely to be the main economies driving the GDP upwards, S&P finds.

Whilst inflation remains above the European Central Bank's (BCE's) target of 2%, it has reduced significantly this year, ending August on 2.2%.

Also, consumer price index inflation fell from July's 2.8% to 2.4% last month – a dramatic year-on-year difference, given that July 2023 saw it reach 5.9%.

Analysts are now becoming quietly confident of a Euribor rate cut next year, and estimate that inflation could finally reach the 2% target.

The BCE, then under Mario Draghi, dropped Eurozone interest rates into negative figures for the first time ever in February 2016 in a bid to increase consumer spending, borrowing, and strengthening the economy.

Interest would remain below zero for over six years, as inflation continued at well below the 2% target.

Global inflation in 2022 led current BCE chair Christine Lagarde to increasing the Euribor at its fastest level in history – within 10 months, it had gone from minus figures to around 4%.

This month, the BCE plans to reduce the rate to 3.5% - only the second cut so far in 2024.

Exactly a year ago, the Euribor sat at 4.073%, meaning homeowners with a variable-rate mortgage will notice a significant difference.

In Spain, variable-rate loans are reviewed annually rather than fluctuating from month to month, offering some stability to borrowers since, effectively, they benefit from a default one-year fixed rate.

Based upon the average mortgage in Spain – currently calculated at just under €142,000 with a 24-year remaining term, costing around €710 a month, according to the National Statistics Institute (INE) – the September Euribor reduction would see repayments reduced by approximately €77, or about €925 a year.