Economic Outlook

“The attack on Iran and the resulting rise in energy prices are forcing the ECB, like other central banks, to make a difficult judgement call. Higher energy prices alone should not yet trigger a monetary policy response. Only when second-round effects set in motion a self-reinforcing dynamic will a tightening of monetary policy become unavoidable. However, this depends crucially on the magnitude and duration of the energy price shock. For the moment, the rise has been too short-lived and the data too ambiguous to force the ECB into a monetary policy response at this stage. The ECB will, however, leave no doubt in its communications regarding its fundamental readiness to tighten monetary policy should this become necessary. It is therefore likely that the word ‘vigilance’ will be the most frequently used term during President Christine Lagarde’s press conference on Thursday.”

Dr. Dirk Schumacher

“Caught in the current uncertainty, the Fed is likely to keep interest rates unchanged. Inflation remains stubborn, while it is unclear how much the recent rise in oil prices will impact inflation. This is further complicated by political volatility regarding new temporary tariffs. In contrast, the labour market shows clear signs of weakness and the latest report was disappointing. Given this complex backdrop, the Fed will likely remain in wait-and-see mode as long as the inflation path remains clouded. Consequently, a rate cut appears unlikely before mid-year, at which point it would occur under new leadership."

Dr Stephan Bales

"In view of the events in the Middle East, the inflation figures reported today for the Euro Area are nothing more than a starting point. At 1.9%, consumer price inflation in February was slightly below the ECB's inflation target. However, this will not remain the case in view of the sharp rise in energy commodity prices. In particular, the higher oil price will be quickly passed on to consumers and will already lead to a noticeable increase in fuel prices in March. However, this is no reason for the European Central Bank to act hastily. The scale of the energy price shock is not comparable to the price explosion of 2022 following Russia's attack on Ukraine. Whether interest rate hikes will be necessary depends heavily on the duration of the war, which is not yet foreseeable. The ECB can tolerate a temporary increase in the inflation rate of a few tenths of a percentage point as long as inflation expectations remain well anchored."

Stephanie Schoenwald

"Given the strong order intake in the manufacturing sector, an increase in the ifo Business Climate Index was long overdue. In January, the Greenland turmoil had certainly been a drag on sentiment. Also, it takes time for the large orders we saw at the end of 2025 to make themselves felt across the breadth of the economy reflected in the ifo index. With today's data point, it has become more likely that Germany is gearing up for an upswing."

Dr Sebastian Wanke

"Following several very strong quarters, US economic growth is cooling off as expected, reaching an annualised rate of 1.4% in the fourth quarter. The government shutdown between October and mid-November throttled momentum through reduced government spending and delayed consumption effects. All in all, 2025 reflects a solid growth rate of 2.2%, which is remarkable given the high level of political uncertainty and dynamic policy shifts. A key driver was the high level of investment in Artificial Intelligence, which remained largely unfazed by economic policy turbulence throughout 2025. In parallel, private consumption continues to support growth despite dampened sentiment. A decisive factor for the future trajectory will be whether the clouded household confidence begins to weigh more heavily on spending behaviour."

Dr Stephan Bales

“Today's slowdown in production follows three consecutive monthly increases. With an increase of 0.9 per cent compared to the third quarter, quarterly momentum remains strong. Together with the excellent order intake, which will only have an impact on production after a delay, the trend reversal in production in this country is likely to be completed soon. Overall, this is a solid foundation, perhaps even a springboard for growth in 2026."

Dr Sebastian Wanke

"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

„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