The chance of the European Central Bank (ECB) hiking interest rates this year has fallen to 15% and financial markets expect rates to rise only once in 2020, by a slender quarter point.
The rate rise indications, which are based on financial bets as suggested by the Euribor money markets, come as evidence piles up that growth in manufacturing and exports in Germany and other big economies in the eurozone is drying up.
Until recently, Irish households and businesses were facing the prospect of sharp increases in borrowing costs, as the ECB injected billions into the financial system to keep rates low and boost eurozone economic growth since the crisis.
Irish households and SMEs already face paying among the most expensive loan rates in Europe.
Any rate increases would have hit mortgage holders, including around half of all home loans which are on tracker mortgages, for the first time since the start of the uncertain economic recovery.
But the slowdown in world economic growth amid the threat of trade wars between involving the US, as well as the uncertainties facing German and French car makers over faltering demand, has weighed heavily on the European economy.
European car makers also face making huge investments in electric cars.
Slower economic growth means that the ECB may struggle to reflate the euro-wide economy.
The institution is being watched closely for any signs that it will now slow plans to dial back on its crisis-era measures of reflating the economy.
Owen Callan, a senior analyst at Investec Ireland, said that rate-hike expectations had contracted sharply last month and had narrowed further in recent days.
As implied by money markets, there was only a 15% chance of a rate increase this year, and markets were predicting the ECB would at most sanction only one rate increase in 2020, of 25 basis points, he said.
New surveys showed eurozone factory output slammed into reverse last month as activity in Germany declined again amid trade tensions and struggles in the car industry.
“There is still widespread concern about how well the economy in Europe has been performing in recent months,” said Michael Hewson, chief market analyst at CMC Markets.
The euro was nonetheless little changed against the dollar despite the darkening prospects for the eurozone economy.
Meanwhile, sterling rose slightly against the euro on renewed hopes that UK prime minister Theresa May will agree a transition deal before the Brexit deadline at the end of March.
The resignation of several Conservative and the opposition Labour party MPs — angry at their leaders’ handling of Brexit — has encouraged some traders to believe that Ms May will show more flexibility in getting a deal and avoiding a no-deal disorderly Brexit in March.
“I’m not yet ready to turn bullish on sterling, but if more people join the Independent Group, it would be like MPs mutinying against their captains in order to steer the ship away from the iceberg,” said Marshall Gittler, chief strategist at ACLS Global.
“That could be extremely positive for sterling.”
Against the euro, sterling gained, rising 0.1% to 86.83 pence.