Economic Outlook

“After a recovery in business sentiment in the first three quarters, the mood has turned sober since autumn. The problems are too great, above all the shock caused by China in large parts of industry. Nevertheless, based on an overall assessment of hard and soft economic indicators, we expect slightly positive growth in the current quarter. Supported by government orders and some impetus for more private investment, we expect growth to accelerate significantly in the new year. "

Dr Philipp Scheuermeyer

“The combination of moderate growth in the Euro Area in the third quarter and an inflation rate close to the two per cent target means that the ECB will leave interest rates unchanged on Thursday. The new ECB staff projections are unlikely to change this macroeconomic picture of solid growth and an inflation rate of around two per cent. The ECB will therefore leave interest rates at their current level for the foreseeable future. However, given the difficult geopolitical situation, there is no shortage of risks that could change the outlook. In particular, the strength of the euro against the US dollar, but also against the Chinese renminbi, and a sharp rise in Chinese imports are weighing on the economy and could necessitate a monetary policy response at a later date. The recovery in Germany could also be weaker than expected, or the trade conflict with the US could flare up again. The ECB will therefore send a clear signal on Thursday that it will adjust its course in all directions if necessary."

Dr Dirk Schumacher

"The available data and comments from members of the Fed's monetary policy committee make an interest rate cut next week highly likely. While the shutdown of many federal agencies and the resulting delays in the release of key data mean the US central bank is operating more in the dark than usual, the apparent relative weakness of the labour market and the overall moderate effect of the tariff increases on inflation will nevertheless lead to a clear majority in favor of an interest rate cut at the December meeting. There is considerably greater uncertainty regarding the Fed's next steps. We expect a pause in interest rate cuts initially. Firstly, we do not anticipate a significant slowdown in growth. Secondly, the Fed will need more time to assess whether there will ultimately be a delayed effect of the tariffs on inflation."

Dr Dirk Schumacher

“The latest inflation data prior to the interest rate decision still remain within the ECB's comfort zone. Consumer price inflation in the eurozone continues to hover close to the 2%-target. The outlook for inflation also gives cause for calm. We expect prices for European consumers to rise by 1.9% in 2026. Services are likely to see the sharpest price increases again next year. This is underlined by employee compensation, which exceeded expectations, particularly in Germany. This will be offset by favourable energy price developments, which will be particularly noticeable at the beginning of the year due to base effects and government relief measures. In our baseline scenario, we therefore assume that key interest rates will remain stable next year. However, there is a risk that the diversion of cheap imported products to Europe will put pressure on industrial goods prices and prompt the ECB to cut key interest rates further.”

Stephanie Schoenwald

„In its flash estimate, the Federal Statistical Office calculated that German GDP stagnated in the third quarter. We should not generally attach too much importance to this figure (0.0%). Experience in recent years has shown that initial growth calculations are highly susceptible to revision. What was initially predicted to be quasi-stagnation in 2023 and 2024 turned out to be a significant recession in retrospect. As the name suggests, even the initial official growth rates are only estimates based on incomplete data. The decisive factor is the overall picture provided by the growth figures and the so-called soft indicators from company surveys such as the Purchasing Managers' Index or the ifo Business Climate Index. Measured against this, the economic picture for the third quarter is also only mixed, which roughly corresponds to the reported stagnation.”

Dr Philipp Scheuermeyer

"At the start of autumn, inflation in Germany is rising, and somewhat more strongly than expected. However, this is not a reversal of the trend. In particular, the previous year's development of energy prices is currently causing fluctuations in the inflation rate. Last September, there were significant price reductions for fuels. As a result, energy prices are now having a much smaller dampening effect on consumer price inflation than before. In the coming months, this trend will reverse again and help to bring inflation down towards 2%. Nevertheless, data from other Euro Area countries also show that the ECB was right in its decision to end its monetary easing policy, especially as price pressure in the services sector is once again proving persistent."

Stephanie Schoenwald

“Although the Prime Minister's defeat was expected, it nevertheless means considerable uncertainty about France's future economic policy course. At present, it is difficult to imagine how – with or without new elections – a new government could be formed that would be able to pursue a serious consolidation course. It will probably take significantly more pressure from the financial markets, in the form of higher interest rates, before a coalition of the willing can be found. Until then, nervousness on the financial markets will remain high.”

Dr Dirk Schumacher

“The labour market is paying the price for the prolonged economic weakness in Germany. The upward trend of the last four years should give us cause for concern and shows that action is needed to strengthen the German economy. However, the rise in unemployment in August is mainly due to seasonal factors, and we are still a long way from the highs seen in the 2000s. Adjusted for seasonal factors, there was even a slight decline. Although it is still too early to classify this as stabilisation, with the upturn we expect next year, the chances of an improvement in the labour market situation are good.”

Stephanie Schoenwald

"The economic recovery since the beginning of the year continues to be burdened by the ongoing trade conflict with the US. Banks are also wary of the uncertain impact on the corporate sector. According to the results of the latest Bank Lending Survey, they slightly tightened their requirements for companies in loan negotiations in the second quarter as they did at the start of the year. Based on companies’ assessments in the KfW-ifo credit hurdle, credit barriers for SMEs remain at record levels. However, banks view the restrictions somewhat more moderately. Since a complete withdrawal of US tariffs is very unlikely even after a trade agreement with the USA, the restrictive lending policy is expected to persist. Hope comes from the fiscal package of the new government. If increased spending on defense and infrastructure provides economic stimulus, banks may become more optimistic in their risk assessments, at least in the relevant sectors."

Dr Jenny Körner