Economy

"The ECB will probably go into the summer break without lowering interest rates again. In view of the recent lack of a decline in service inflation, this prudence seems appropriate to me. The cards will then be dealt anew in September. A continuation of monetary easing is currently the most likely scenario. However, a key prerequisite is that there are signs of a slowdown in wage growth by then. To enable employees to compensate for the loss of purchasing power they have suffered, collectively agreed wages have risen significantly until recently. This is still causing above-average cost pressure in the labour-intensive service sector. In addition, the ECB's scope for cutting interest rates also depends on the fiscal policy of European governments."

“Inflation in the eurozone has edged down again. After the setback in the previous month, this is a welcome confirmation that inflation is moving in the right direction. However, the ECB will play it cool at the upcoming Governing Council meeting in July, as it wants to ensure that wage growth, which has been very strong until recently, will slow down or be sufficiently cushioned by productivity growth and lower profit margins. The next interest rate cut is expected to take place only in September, if the many new data points coming in by then point predominantly in the right direction.”

“The ups and downs continue – yet the overall trend is moving in the right direction. Despite the European football championships in Germany, inflation slowed down again in June following the rise in the previous month. The familiar picture remains unchanged. With above-average price increases, labour-intensive services are preventing the inflation target from being reached quickly and sustainably. On the other hand, consumers can be pleased that they only have to pay a little more for industrial goods than a year ago thanks to the resolution of supply bottlenecks.”

"The leading economic indicators show that the mood is brightening, with slight fluctuations, and the economy is slowly picking up speed. This is having a delayed effect on the demand for labor. At 700,745, the number of job vacancies in May was still 83,805 lower than in the same month last year. However, at 34.9 million, the number of employees subject to social insurance contributions at the end of April was 183,200 higher than a year earlier. A wave of redundancies, which usually accompanies economic downturns, did not materialize due to the shortage of skilled workers. Employment has risen above all in less cyclical sectors of the economy. These include healthcare, care homes and social services, public administration, defense and social security as well as information and communication. In contrast, there was a reduction in employment in manufacturing, construction and trade in particular, as well as in temporary employment agencies. Accordingly, the shortage of skilled workers in the manufacturing and construction sectors has also eased."

“The German economy returned to a modest growth rate in the past quarter. The good production data already announced this a few weeks ago, even though the sentiment indicators in the first quarter were still predominantly gloomy. In the meantime, however, sentiment indicators have also improved, meaning that there are signs of an economic acceleration on all sides. Nevertheless, the structural challenges remain, particularly due to demographic ageing, decarbonization and the intensified competitive environment in many areas.”

“The start of the interest rate turnaround is approaching in the eurozone. I expect the deposit rate to be lowered in July at the latest. Overall, consumer price inflation remained unchanged in April. However, the fact that services inflation has eased after a five-month standstill is likely to be more important for the ECB. At the same time, the growth environment in the eurozone suggests that inflation remains on target. Although gross domestic product surprised on the upside in the first quarter and sentiment has recently brightened somewhat, the European economy is likely to be slow to pick up speed. This suggests limited domestic price pressure. However, the development of energy prices remains a risk factor for inflation and the economy due to the ongoing geopolitical tensions.”

“In the US, the interest rate turnaround is likely to be delayed. Three negative inflation surprises in a row are too many for the Fed. Driven by services, price pressures have consistently regained strength in recent months. In the run-up to the upcoming FOMC meeting, Fed Chairman Powell already made it clear that the desired clarity regarding a sustained convergence of inflation towards the 2% target had failed to materialize. The robust economy, in particular the strong labor market, also relieves the Fed of the urgency to start easing. The probability of an interest rate cut before the summer break has therefore decreased significantly.”

“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.”