Europe hikes rates to fight inflation

European companies are facing additional pressures following the European Central Bank's decision to raise interest rates in an effort to curb inflation, which is expected to reach 3% by 2026. Economic growth is also projected to be modest at around 0.9%. The increase in interest rates leads to higher costs of liquidity needed by companies to purchase energy and raw materials, squeezing profit margins and potentially slowing demand. This could result in rising prices for end products. It is estimated that each quarter-point increase in interest rates could cost companies between €25,000 and €250,000 annually, depending on their borrowing size. This makes financing raw materials and energy more challenging, especially for small and medium-sized enterprises. The impact is especially concentrated in energy-intensive industries such as chemicals and metals. There are concerns that these pressures could slow investment and lead to reductions in hiring, with the severity of the crisis's impact varying by country—from greater exposure in Italy to less in France and Germany.

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