Energy prices are continuing to drive up inflation in the eurozone. In October, the rise in consumer prices accelerated to 4 per cent. Given the unresolved conflict with Iran, inflation rates of this magnitude are set to persist over the coming months. A noticeable slowdown in inflation is not expected until the second quarter of 2027, as low energy prices will then be excluded from the year-on-year comparison. To ensure that inflation expectations remain anchored and to counteract second-round effects, the ECB will therefore almost certainly raise key interest rates again in December. It would take a marked deterioration in the economic situation to dissuade the European Central Bank from doing so.

Stephanie Schoenwald

The short-term easing of inflation is overshadowed by growing price risks for the coming year. The rise in German consumer prices slowed more than expected to 2.8 per cent in October. Motorists, in particular, were given some relief by the reinstatement of the fuel rebate. At the same time, price pressures remained subdued across the board, with core inflation falling to 2.1 per cent. However, the outlook for future inflation remains tense. Gas and oil prices have risen significantly again in recent weeks – driven by ongoing conflicts and lower stock levels. Businesses are already responding to this with expectations of higher selling prices. Unless the situation changes, the ECB is highly likely to counter this with a further interest rate rise in December.

Stephanie Schoenwald

Five days before the US mid-term elections, strong growth figures for the third quarter reinforce the picture of a resilient US economy. Private consumption continues to prove a mainstay despite inflation, high fuel prices and rising interest rates. At the same time, the AI investment boom has been driving growth for months, although high imports of hardware are diminishing its actual contribution to growth. However, AI is also increasingly being financed through debt, which makes growth more vulnerable to sudden liquidity crises. Without the cushion provided by equity capital, a lack of profits combined with high interest rates can quickly lead to payment difficulties. As long as the AI narrative holds, however, this growth momentum can continue to sustain the US economy for quite some time yet.

Dr Stephan Bales

The ifo Business Climate Index has improved for the sixth consecutive time. At the same time, wholesale oil and gas prices have risen sharply again in recent weeks, and a resolution to the conflict between the U.S. and Iran remains out of sight. In fact, there is even a risk of renewed escalation in the Persian Gulf following the U.S. midterm elections. Against this backdrop, the latest survey results should be viewed in an even more positive light. Although the assessments of the current situation in the ifo-survey have deteriorated somewhat, the Purchasing Managers’ Index remains in the growth zone, and business expectations for the next six months have actually risen further. The fiscal stimulus and the demand for German intermediate goods to fuel the boom in AI infrastructure are likely to sustain the upswing. However, the German economy is certainly not entirely immune to extremely high energy prices, which means that developments in the Gulf region remain the greatest risk to the economy.

Dr Philipp Scheuermeyer

The ECB is currently facing a very complex set of circumstances. On the one hand, inflation remains well above the two per cent target. The recent rise in oil and gas prices means that this is likely to remain the case for the time being. At the same time, wage growth is slowing. Households’ inflation expectations show no sign of accelerating. Finally, the ECB must take into account the sharp rise in interest rates on longer-term products, which in itself will dampen growth and, consequently, inflationary pressure. All of this points to a pause in interest rate rises this coming Thursday, during which the ECB can continue to monitor the data. However, the Governing Council will likely send a strong signal that further tightening of monetary policy remains necessary. Developments in France are sure to be discussed during the press conference. ECB President Lagarde will reiterate in this context that decisions on the future course of monetary policy will depend solely on the assessment of inflation dynamics and not on political events in individual countries of the monetary union.

Dr Dirk Schumacher

Following September’s rate hike, the Fed is likely to stay on hold in October to avoid a hasty reaction. However, inflationary pressures remain stubborn. Therefore, another rate step in December will be all but inevitable. In the current jittery market environment of surging yields, the central bank must not give the impression of falling behind the curve. In this situation, the Fed stands and falls with its credibility. This forces Fed Chair Warsh onto a course that contradicts President Trump's expectations. Yet, a willingness to cut rates was considered an unwritten condition for his nomination to lead the Fed. For now, Trump is holding back on personal attacks against Warsh, but the potential for conflict could rise.

Dr Stephan Bales

The German economy weathered the energy price shock remarkably well in Q2. Furthermore, growth figures for the first quarter have been revised slightly upwards, so we can now expect a number of upward revisions to economic forecasts. One reason for the positive growth reported in the flash estimate was surprisingly strong exports. In the manufacturing sector, a number of indicators – such as new orders and turnover – are consequently pointing significantly upwards again. Private consumption also remained broadly stable, despite the loss of purchasing power, as reflected in retail turnover. Finally, it is encouraging that business surveys also improved significantly in July, led by the Purchasing Managers’ Index. Nevertheless, the crisis is not yet over, as the Strait of Hormuz remains blocked and a stable ceasefire is not yet in sight. Furthermore, the ongoing drought could still restrict industrial production somewhat this summer due to supply bottlenecks.

Dr Philipp Scheuermeyer

The May production data, once more, reflect the imbalances caused by the war in Iran, making the data difficult to interpret. The effect of bringing forward purchases due to fears of supply shortages is countered by caution stemming from concerns about the future. More importantly, however, it has to be said that the recovery has already begun behind the scenes. This is evident in the manufacturing sector’s order intake, which – even when excluding major contracts – is clearly trending upward. This will soon fuel production in this country over the longer term, especially once oil and gas can again pass freely through the Strait of Hormuz and reforms provide additional momentum.

Dr Sebastian Wanke

The preliminary results for the Composite PMI for June show a further slight deterioration in business sentiment in Germany, driven by the services sector. This continued downturn suggests that the war in Iran is just one factor weighing on business sentiment. It is also noteworthy in this context that sentiment among French businesses improved significantly in June. There is no question that the end of the Iran war and the decline in oil prices will have a positive impact on the German economy. However, today’s figures suggest that this alone will not be enough to trigger a renewed acceleration later in the year. Fiscal stimulus and further reform efforts are necessary for a lasting improvement in sentiment.”

Dr Dirk Schumacher