Economy
Comments of KfW Research
02.05.2025 | Inflation in the Euro Area April 2025

"In the Euro Area, services are becoming more expensive again and pulling core inflation up. One reason for this is certainly the later timing of Easter. Nevertheless, the figures are a warning sign, as they show that price pressure in the services sector remains stubbornly high. However, with a strong tailwind from energy prices, the bottom line is that the inflation rate remains unchanged. Together with the strong euro, which makes imports cheaper, and the economic burdens from the trade conflict, this should be enough to stabilize consumer inflation close to the 2-percent-target in the medium term. This leaves the door open for the ECB to cut interest rates again in June."
Stephanie Schoenwald
02.05.2025 | Comments on the upcoming Fed meeting on 7 May 2025
“The Fed is facing an unusually complicated macro-economic picture at its upcoming meeting. The underlying reason for the current high degree of uncertainty with respect to the outlook is the seemingly constant back-and-forth of the Trump administration with regards to tariffs on foreign goods as well as the response of other countries to these. While there are some early signs that tariffs are already weighing on the US economy, it is very difficult to say how much more the economy will slow. Furthermore, it is conceivable that inflation, despite a weaker economy, will re-accelerate on the back of tariffs. In short, the US economy may face a significant adverse supply shock that could set growth and inflation on diverging trajectories. Given the low visibility on the outlook, we expect the Fed to stay on hold next week. It is noteworthy in this context that chairman Jerome Powell sounded rather sanguine about the sell-off in the USA Treasuries market, describing it as a normal adjustment to a changed environment. At the same time, we think the Fed to be more responsive to the coming slowdown of the economy than a potential rise in inflation, implying that we forecast rate cuts to resume in June.”
Dr Dirk Schumacher
German Economy / European Economy
KfW Business Cycle Compass Germany / Eurozone
The German economy is struggling to get any wind in its sails
25 February 2025
The German economy is currently getting some lift from the monetary easing and higher real wages. Still, consumption remains subdued and investment is still muted. The threat of tariffs from the US is also clouding the outlook for exports. All in all, the sawtooth-shaped business cycle is likely to continue for the time being. KfW Research now expects GDP to fall again slightly by 0.2% this year. Real growth should pick up again moderately to 0.3% in 2026. Euro area GDP is likely to grow by 0.6% in 2025 and 0.8% in 2026. Inflation (HICP) will likely hit 2.2% in the euro area and 2.4% in Germany in 2025 as a result of persistent services inflation. It should fall to 2.0 and 2.2% in 2026.

KfW-ifo SME Barometer
SMEs play a decisive role for the growth and prosperity of an economy. Using its unique surveys, studies and statistics, KfW Research analyses the needs of SMEs in Germany. The KfW-ifo SME Barometer indicators are based on a scale-of-enterprise evaluation of the ifo economic surveys, from which the well-known ifo business climate index is calculated, among others. Around 9,500 businesses, including around 8,000 SMES, from manufacturing, construction, wholesale, retail and services (excluding lending, insurance and state) are polled monthly regarding their economic situation.
Germany’s ‘Mittelstand’ between hope and fear
5 May 2025
After rising sharply in March, business sentiment among SMEs remained virtually unchanged in April. To be sure, SMEs are slightly more positive about their current business situation than in the previous month. At the same time, however, their expectations are now more pessimistic again, offsetting most of the improvement in situation assessments. In addition, the tariff conflict that escalated in early April has caused manufacturers’ export expectations to literally plummet.

Contact
KfW Research, KfW Group, Palmengartenstrasse 5-9, 60325 Frankfurt, Germany, research@kfw.de
Share page
To share the content of this page with your network, click on one of the icons below.
Note on data protection: When you share content, your personal data is transferred to the selected network.
Data protection
Alternatively, you can also copy the short link: https://www.kfw.de/s/enkBbw3W
Copy link Link copied