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Europe's economic outlook remains cautious despite recent fiscal activism, with minimal changes to growth forecasts for 2025. The looming trade war and potential tariffs from the U.S. overshadow any government budget boosts, while rising bond yields may lead to austerity measures that could negatively impact growth. Despite these challenges, the job market and consumer spending show promise, but confidence remains key for sustained recovery.
The European Central Bank may consider implementing yield-curve control to manage rising government borrowing costs that could undermine the effectiveness of interest-rate cuts. Carsten Brzeski, chief euro-zone economist at ING, noted that this strategy has been previously used in Japan and Australia.
Germany's government collapsed amid disputes over the debt brake, a constitutional fiscal rule limiting government debt. Chancellor Olaf Scholz's push for reform clashed with former Finance Minister Christian Lindner's strict adherence to the rule, leading to early elections in February. As the new coalition forms, debates on the future of the debt brake and potential fiscal reforms are expected, with varying opinions on the necessity and extent of changes.
IG Metall has secured a 5.5% wage increase for 3.9 million employees in the German metal and electrical industry over the next two years, with a 2% rise effective April 1, 2025, followed by 3.1% a year later. Additionally, workers will receive a one-off payment of 600 euros by February 2025. The agreement reflects a shift towards job security amid economic challenges in the sector.
Germany's inflation rose to 2.4% in October, surpassing the European Central Bank's 2% target, while the country narrowly avoided a technical recession with a 0.2% GDP growth in the third quarter. Core inflation increased to 2.9%, and services inflation nudged up to 4%. Analysts predict inflation will remain between 2% and 3% throughout next year, influenced by rising wages and diminishing energy base effects.
The European Central Bank (ECB) is expected to cut its key interest rate by 25 basis points to 3.25% during its meeting on 17 October, amid declining inflation and economic concerns in the eurozone. Economists anticipate further cuts in December, with projections suggesting the ECB could reach its neutral rate by mid-2025. While rate cuts typically boost equity and bond markets, some experts caution that a surprise hold is still possible due to a lack of significant economic data since the last meeting.
The European Central Bank (ECB) is expected to cut its key interest rate by 25 basis points to 3.25% during its meeting on 17 October, amid declining inflation and economic concerns in the eurozone. Economists anticipate further cuts in December, with projections suggesting the ECB could reach its neutral rate by mid-2025. While rate cuts typically boost equity and bond markets, some experts caution that a surprise hold is still possible due to a lack of significant economic data since the last meeting.
Carsten Brzeski
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