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Germany’s next government looks set to cut taxes and, if the parliamentary maths allow, reform the constitutional fiscal rule. It is also likely to be firmer in its support for Ukraine even as support from the US wanes and to advocate an increase in EU …
20th February 2025
The decision by the US and Russia to “lay the groundwork” to end the war in Ukraine marks a potentially significant turning point after three years of conflict. Negotiations will take time and the macroeconomic implications will depend on the features of …
18th February 2025
European governments are poised to further scale up their plans for defence spending in the coming years which should benefit the equity prices of European defence companies, but the boost to GDP is likely to be small. As things stand we think the bulk of …
17th February 2025
Trump rings bell for next phase of trade war… While the EU was not in the firing line in President Trump’s first round of tariffs in January, he did make it clear that the EU was still ”in for tariffs”. So the 25% universal tariff on steel and aluminium …
14th February 2025
Productivity problems The euro-zone economy performed a little better than previously thought in Q4, but growth was still extremely weak and the early signs are that it got off to a slow start to 2025. There is also little evidence of a turnaround in the …
Booming demand for housing has led to huge price rises in southern Europe over the past few years and will support rapid construction growth for some time to come. Moreover, there is little risk of a bubble forming because mortgage borrowing has been …
13th February 2025
President Trump’s push for an early peace agreement in Ukraine raises the prospect of higher defence spending in Europe and increases the chance of a fall in European natural gas prices. But it does not dramatically shift the outlook for the European …
December even worse than it looks and the outlook remains bleak The fall in euro-zone industrial production in December means that the sector contracted again in Q4. Surveys suggest that production will remain subdued in the coming months and we think …
This publication has been updated with additional analysis. Swiss inflation to stay very low this year The fall in inflation in January was a little smaller than we had anticipated and perhaps reduces the risk of Switzerland falling into deflation later …
Any attempt by the EU to impose tariffs on imports of US services would be controversial and difficult to implement. It is more likely that the EU links regulation and domestic taxation of digital services to trade relations with the US – but probably by …
12th February 2025
Prospects for Greece’s economy are brighter than for the core euro-zone economies over the next year or two, but a shortage of labour will keep growth lower than in fellow “peripheral” economies, notably Spain. It could also cause growth in Greece to slow …
The latest opinion polls suggest that a CDU-SPD coalition is the most likely outcome of the German election. Such a coalition would be less likely to pursue labour market reforms and activist industrial policies than a CDU-Green coalition. But we think it …
11th February 2025
We expect the euro-zone economy to grow at only a sluggish pace this year, with southern economies outperforming the core. Germany’s election will lead to only a modest loosening of its restrictive “debt brake”. France’s budget deficit will remain very …
10th February 2025
While there is currently a lot of focus on r* at the ECB (which we wrote about earlier today ), the outlook for wage growth may prove to be more important in guiding monetary policy. And the ECB’s wage tracker, released on Wednesday, suggests that wage …
7th February 2025
Comparing the ECB’s deposit rate to estimates of its equilibrium level suggests that monetary policy will soon be only slightly restrictive. But there is a huge amount of uncertainty around these estimates. With the economy struggling and underlying price …
Our senior economists hosted a wrap-up of the latest policy decisions from the Fed, the ECB and the Bank of England, to answer questions from the audience about how the strategy of these banks is evolving in the face of acute global uncertainty. … …
Will the federal election outcome bring any clarity to Germany’s existential economic and political questions? Could a new government usher in an era of more aggressive fiscal spending – including on defence – and structural reform? Will Germany's new …
This page has been updated with additional analysis since first publication. German industry ends 2024 in poor health The sharp drop in German industrial production in December means output fell for a third successive quarter in Q4. Looking ahead, s …
Retail sales lose momentum in Q4 December’s fall in euro-zone retail sales means that growth over Q4 as a whole slowed substantially. We suspect that spending growth will remain subdued in the coming quarters. The 0.2% m/m decline in euro-zone retail …
6th February 2025
We expect Germany’s next government to reform the national fiscal rule to allow some tax cuts and increased public investment. But it is likely to make slow progress on structural reforms such as digitalisation and improving the environment for start-ups. …
4th February 2025
This weekend’s US trade policy announcements and Trump’s threats to impose tariffs on Europe raise the question of whether there is a bigger risk to the euro-zone than we had thought. This Update recaps on four key points about how the euro-zone economy …
3rd February 2025
January’s inflation data won’t change ECB policymakers’ minds about the likely near-term path for interest rates. The fact that services inflation remained high will mean that they will prefer to loosen policy in small steps. The small increase in …
EU policymakers have stepped up their calls for progress towards Capital Markets Union and there will be steps in that direction in the coming years. But we aren’t holding our breath for major change. And even if policymakers do more than we anticipate, …
31st January 2025
An initially dry January for euro-zone watchers ended with a data deluge in the last few days which has underlined that the euro-zone economy is struggling and offers hope that inflation is easing. The most striking releases were Q4 GDP data published …
Euro-zone inflation easing in January National and state level inflation data published so far suggest that euro-zone inflation may come in a bit lower than anticipated. (Euro-zone data due on Monday 3 rd February). This would support those on the ECB …
January’s EC survey points to continued weak GDP growth at best. While it also suggests that there are some upside risks to inflation in the near term, firms’ employment expectations and labour shortages are easing which should help to bring down services …
30th January 2025
It’s clear that after cutting its deposit rate from 3% to 2.75% today, the ECB expects to reduce rates further in the coming months. We think that weak growth and inflation will mean that the Bank has to lower interest rates further than most investors …
ECB has much further to go The ECB’s decision to cut its deposit rate from 3% to 2.75% today came as no surprise and the accompanying statement implies that more cuts are coming, as is widely anticipated. We think the Bank will have to lower interest …
Weak economy means ECB will keep cutting The stagnation in euro-zone GDP in Q4 supports our view that the region’s economic prospects are worse than most think. We expect this to prompt the ECB to cut interest rates by more this year than is discounted in …
Germany, France and Italy all weighing on euro-zone growth With national data now available for all larger euro-zone countries, it looks as if GDP growth in the region slowed to 0.1% q/q or even zero in Q4 last year. (Euro-zone GDP data are out at 10.00 …
Euro-zone money and lending growth data paint a rosier picture of the economy’s near-term prospects than the latest business surveys and suggest that the impact of ECB rate cuts is feeding through. However, that won’t stop the Bank from cutting interest …
29th January 2025
This page has been updated with additional analysis Riksbank makes final rate cut of the cycle We think that the Riksbank will keep its policy rate at 2.25% for the foreseeable future after delivering a 25bp cut today. While there is a lot of uncertainty, …
Spain’s strong growth showing no signs of abating The 0.8% q/q increase in Spain’s GDP in Q4 2024 was a bit stronger than expected as the economy brushed off the negative effects of the flooding in Valencia. The economy is likely to continue to increase …
Although European natural gas prices will still influence EU carbon prices in the near-term, investors’ recent optimism suggests that expectations for a tighter carbon market down the line are starting to drive a wedge between carbon and gas prices. The …
28th January 2025
German economy starts year on weak footing The Ifo Business Climate Index (BCI) remained in contractionary territory in January which supports the consensus and our own view that that Germany will eke out only a small expansion in GDP this year. The …
27th January 2025
Europe appeared to be out of President Donald Trump’s firing line this week, with the harshest comments reserved for Mexico and Canada. This contributed to the euro rising from 1.02 against the US dollar to 1.05. The currency also benefitted from the …
24th January 2025
We think that next week the Riksbank will cut its policy rate for the final time this cycle, reducing it from 2.5% to 2.25%. After that, we do not see a need for policymakers to loosen policy any further as there are already emerging signs of an economic …
This page has been updated with additional analysis since first publication. Growth remained sluggish in January We expect data released next week to show that the euro-zone economy grew by only 0.1% q/q in Q4, and January’s PMIs point to a similarly poor …
25bp rate cut very likely next week. We expect ECB to lower interest rates further this year than investors anticipate. US trade policy likely to have little impact on euro-zone inflation and monetary policy. The ECB looks set to cut its deposit rate …
23rd January 2025
Today’s policy announcement confirms that Norges Bank is likely to start cutting interest rates at its meeting in March, almost certainly with a 25bp reduction to 4.25%. We think it will then loosen monetary policy a little more quickly than its latest …
Norges Bank to start cutting in March Today’s policy announcement confirms that Norges Bank is likely to start cutting interest rates at its meeting in March. We think it will then loosen monetary policy a little more quickly than its latest projections …
Developments over the past year have put France’s public debt on a steeper upward path, with the debt ratio now likely to rise from 113% of GDP last year to around 126% by 2030. We see little chance of a sustained fiscal consolidation in the coming years …
21st January 2025
Oil prices up, but inflation will still fall We now think that headline inflation will be a touch higher this year than we previously expected, but it will still probably average around 2% and the core rate will keep falling. So this doesn’t change our …
17th January 2025
Services inflation in the euro-zone was stuck around 4% last year but we remain convinced that it will decline significantly in 2025. Data released today confirmed that euro-zone headline inflation rose from 2.2% in November to 2.4% in December. The core …
The Shape of the Fractured World in 2025 The share of the fracturing global economy that is accounted for by China and its geopolitical allies contracted in 2024, leaving it under a third the size of the US bloc at the start of 2025. This fall was in part …
December’s weaker-than-expected inflation outturn won’t sway Norges Bank: we still expect it to wait until March to start cutting interest rates. We suspect that it will then lower rates gradually, once per quarter, until the key policy rate reaches 3% in …
16th January 2025
This page has been updated with additional analysis since first publication. Outlook weak despite rise in production The small uptick in euro-zone industrial production in November will be of little relief to the beleaguered sector. Surveys suggest that …
15th January 2025
Germany still in the doldrums Preliminary GDP data for Germany suggest there is still no sign of the country exiting stagnation, with GDP down slightly in both Q4 and in 2024 as a whole. We forecast a very small cyclical recovery in 2025, but even that …
The CDU’s economic policy agenda, released today, clearly recognises the scale of Germany’s economic challenges and proposes some sensible policies to address them. But some of the measures are not ambitious enough and many will not be implemented in full …
10th January 2025
