ECB to consider rate hike by year-end — Franklin Templeton

David Zahn of Franklin Templeton projects the European Central Bank will start considering rate hikes at the end of 2025. He believes increased defense spending to be the key driver of the region’s economic growth. 

The expert especially highlights Germany’s plans to unlock hundreds of billions of euros for defense and infrastructure spending. He estimates that these large-scale investments will inevitably boost economic activity and have an impact on inflation.

Zahn's forecast contradicts current market expectations, with most investors pricing in three more 0.25 percentage point rate cuts through the end of 2025.

The expert’s investment strategy focuses on major eurozone countries, as they are the most resistant to economic fluctuations. However, he has reduced his heavy overweight to Spain, given the country's low level of military expenditures.