Economy

“We continue to approach the inflation target with small steps. The slowdown in consumer price inflation persists in March. However, the last mile remains an arduous affair. The fall in energy prices, which has had a strong dampening effect in recent months, is slowly crumbling away. At the same time, services are still becoming much more expensive. However, the sales price expectations of service providers have fallen recently and the pace of wage increases has also slowed somewhat. Only if these positive developments continue and are reflected in prices to a sufficient extent will the ECB consider the conditions for a first interest rate cut in the summer to be fulfilled.”

“The retreat of inflation continues. The falling food prices is providing welcome relief for consumers and, despite the current rise in oil prices, energy costs less overall than a year ago. However, the uncomfortably high service inflation rate of 3.7 % remains worrying. The early Easter this year is likely to have played a significant role in this. Package holidays in particular is likely to have become much more expensive in March due to the early Easter. The last few steps toward the inflation target could still be bumpy. In April, the end of the VAT reduction is likely to lead to a surge in gas and heating prices.”

"As the economy has slowed, the shortage of skilled labour has also eased somewhat. The number of registered vacancies has fallen by more than 70,000 to around 700,000 since last year. Nevertheless, a lack of skilled labour is hampering economic growth and delaying the climate-neutral and digital transformation. The extent of the shortage is reflected in the vacancy times for open positions. On average, it takes 170 days for a vacancy registered with the job centres to be filled – four times as long as 20 years ago. This is a historic high. IT professions are particularly affected. The demand for IT experts has been boosted by the promising advances in artificial intelligence. The shortage of IT specialists is hampering productivity progress, which is the source of economic growth. In order to curb the shortage, more young people in education, those in employment and job seekers must qualify for careers in information and communication technology and familiarise themselves with the application and development of new software and technologies."

"The Fed will most likely leave the key interest rate range unchanged at 5.25% to 5.50% at its March meeting. However, US Federal Reserve Chairman Jerome Powell is likely to hold out the prospect of an initial interest rate cut in the summer. However, he will not guarantee an easing of monetary policy. The Fed will make its decision dependent on the further development of the overall economic situation. The basic prerequisite for an interest rate cut is that the Fed is convinced of a sustained decline in the inflation rate towards the two per cent target. In February, inflation again moved more or less sideways. The coming data points must therefore increase confidence that price rises are really under control before starting to cut interest rates again."

"The ifo Business Climate has recovered in February. With good reason, as we believe that the economic outlook is better than the still gloomy business expectations of companies. Rising real wages, an expected stable level of employment and a recovery in global trade are the silver lining on the horizon and should gradually boost the economy from the spring onwards. Although we only expect growth of 0.3% this year due to a rather meagre start to it, economic output is likely to expand by more than 1% again next year."

"The GDP in the eurozone stagnates in the fourth quarter. The GDP flash estimate of the German Federal Statistical Office for the quarterly growth rate in Germany already indicated a contraction of the largest economy in the euro area for the winter quarter. For the eurozone came it now better than expected, but weak numbers of the industry production and the construction sector strain economic growth. The hoped-for consumption engine lacks yet the steam. Thereby the signs for rising consumption expenses are good with the drop of inflation und wage increases such that the private consumption may soon support the euro area economy. Therefore, I expect a moderate economic recovery in 2024. For the whole year we project a growth of around three-quarter percent.”

"According to the first official estimate, the German economy shrank by 0.3% last year. This primarily reflects the impact of the global tightening of monetary policy and the consequences of the energy crisis with a loss of purchasing power and an increase in costs for energy-intensive industries. However, we see a silver lining for the economy in 2024. Thanks to strong real wage growth, private consumption in particular is likely to pick up again. Together with an expected recovery in export demand, gross domestic product is likely to grow by around half a per cent. Inflation is expected to return to an annual average of around 2 per cent. This means that the landing after the period of high inflation will probably be quite soft in Germany too."

“The economic outlook for the German economy is better than the current mood. The data on wage developments reported today confirm the assessment that private consumption should sustain a moderate economic recovery. The gap between inflation and nominal wage growth is visibly closing. A more significant increase in real wages can be expected at the end of the year. Driven by high price increases and the shortage of skilled workers, employees will receive the highest nominal wage increases in 30 years in the current year. On average, collectively agreed wages are expected to rise by more than 5% in 2023. A smaller increase is expected for next year. However, at around 2.5% (HICP), inflation in 2024 is likely to be much lower than in the current year, for which I expect average inflation of 6.3%. Subdued aggregate demand limits the scope for further price increases, and prices for both energy and food have already stabilised since the winter. If this development continues, real wages will rise noticeably again next year. This also gives rise to cautious optimism for the economy. In 2024, German GDP should therefore grow again after a decline of 0.4% this year, albeit only moderately at 0.8%.”

"The US economy grew by 2.4% on an annualised basis in the second quarter. The US economy is proving resilient despite the Federal Reserve's aggressive turnaround on interest rates. Stable consumer spending and nonresidential fixed investment had a positive impact. However, I continue to expect rising interest costs to slow economic activity in the second half of the year. Sentiment in the manufacturing sector has already deteriorated noticeably and the labour market, which has been clearly overheated lately, seems to be slowly cooling down somewhat. Workers will feel the impact, which will weigh on consumer spending in the coming months. However, on Wednesday, in parallel with the expected interest rate hike of a further 25 basis points, the U.S. Federal Reserve changed its assessment of current U.S. growth from "modest" to "moderate". The Fed now probably assumes that it only needs an economic dip – and not a recession – to push inflation further toward the two-percent target. This means that the US economy could come out of this interest rate cycle with a black eye.”