Economic Outlook

“The Governing Council of the ECB will leave interest rates unchanged at its upcoming meeting. The data has developed largely as expected: the eurozone economy is growing moderately and inflation is roughly at the ECB's 2% target. Geopolitical risks will dominate the discussion in the Governing Council. Although the conflict over Greenland appears to have been resolved for the time being, the ECB is under no illusion that tensions could flare up again at any time. This means that uncertainty about the future economic outlook remains high. The strong appreciation of the euro is just another sign of this uncertainty. The strength of the euro does not reflect economic dynamics, but rather growing mistrust of American politics. It is therefore likely that the ECB will signal a certain unease about the strength of the euro, without, however, announcing any concrete measures.”

Dr Dirk Schumacher

"At the beginning of the year, several price-dampening relief measures by the German government, including the reduction of grid fees and the lowering of VAT in the gastronomy sector, took effect. Nevertheless, inflation accelerated in January, somewhat more than expected. Above all, more expensive food and rising energy prices compared with the previous month dampened the impact. Geopolitical tensions have caused the price of crude oil to rise by around 15% since the end of December. Together with the increase in the price of CO2, this has had a noticeable impact on fuel costs. Although a significant undershooting of the inflation target seems to be off the table in the short term, downside risks to price dynamics remain in view of the ongoing appreciation of the euro."

Stephanie Schoenwald

“The Ifo survey showed little movement in January. Both the assessment of the current situation and the assessment of the medium-term development remained largely unchanged. German companies therefore remain cautiously optimistic about the further course of economic momentum for this year. Against the backdrop of ongoing geopolitical uncertainty, this relative robustness of expectations is a positive sign. At the same time, the assessment of the current situation remains low. This shows that the expected upturn is still a hopeful prospect and anything but a sure thing.”

Dr Dirk Schumacher

"The first US interest rate decision of the year has faded into a mere side note. Due to a lack of new impulses from inflation and the labour market, a pause in rate hikes is considered certain. The real upheaval is occurring at the political level. The looming charges against Fed Chair Jerome Powell are casting a shadow over the central bank's independence. So far, financial markets have largely ignored this risk. Should the US Federal Reserve increasingly lose its independence, it threatens a loss of confidence with a dangerous momentum of its own. Consequently, 2026 could also become a turbulent year. Brighter spots, however, include Powell's steadfastness and the critical stance of the Supreme Court, which is questioning the attempted dismissal of Governor Lisa Cook and emphasising the importance of the Fed's independence."

Dr Stephan Bales

“The US economy clearly demonstrated its resilience with an annualized growth rate of 4.3 percent in the third quarter. After a volatile first half of the year, many signs point to a marked stabilization of the US economy. This allows markets to enter the holiday season with more confidence following a turbulent year of trade policies. We also expect solid US economic growth in the coming year. Although many households still feel the burden of price increases from recent months, the recently easing inflationary pressures offer hope for relief. Corporate investments are more cautious than in the spring but are expected to gain some momentum again due to the investment commitments from the trade deals. Despite global uncertainties and tariff costs that have yet to be fully felt, the US economy remains on track.“

Dr Stephan Bales

“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

“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