Economy

"The last interest rate decision of the year will not be an easy one for the US Federal Reserve due to mixed signals. Since Donald Trump's election victory, the stock markets have risen significantly, and consumer sentiment has reached its highest level in a year and a half. Along with a strong increase in wages in November, this continues to support demand. Meanwhile, the current labor market data and inflation figures for November did not provide any new impulses. The rise in the unemployment rate was expected, such as the slight increase in inflation to 2.7 percent. Overall, the arguments in favor of a rate cut instead of a pause are likely to prevail. I predict that the Fed will delight the financial markets with another rate cut of 25 basis points a week before Christmas."

Dr Stephan Bales

“There is currently light and shade on the labour market. On a positive note, employment has continued to rise into 2024. The number of people in employment has reached a record level of more than 46 million. Unemployment is also at a historically low level despite the deep recession in 2020 and three years of stagnation. In the third quarter, the unemployment rate according to the international ILO definition was 3.3%, one of the lowest levels since reunification. This is only half as high for Germany as the average for all EU countries. However, the fact that the number of unemployed has risen significantly again since 2021 is cause for concern. Due to the subdued economic outlook, the number of unemployed is expected to continue to rise next year. In addition, the shortage of skilled labour and weakening labour productivity are dampening growth prospects for the German economy. In order to boost productivity growth again, Germany must invest more and push ahead with digitalisation, including in the service sector and in local authorities, with the aim of increasing productivity.”

Martin Müller

“Some ups and downs were bound to happen on the road to sustainable price stability. Base effects are pushing European inflation back above the target of 2% in November. However, the ECB had already factored in a moderate overshoot of the inflation target by the end of the year. In view of the economic weakness, this does not change the expectation that inflation will continue to fall next year. The ECB will loosen the monetary reins again a little at its next meeting. A key interest rate cut of 25 basis points seems appropriate.”

Stephanie Schoenwald

“After the lower figures of recent months, the inflation pendulum is swinging a touch in the other direction again. The outlook for the Christmas shopping season has been further dampened. Despite strong wage increases, a gloomy consumer mood was already reported yesterday. The fall in energy prices provided less relief than in previous months and services became significantly more expensive at 4.0% year-on-year despite the usual seasonal price reductions. However, in view of the subdued development in demand, a noticeable slowdown in price increases in this economic sector is only a matter of time.”

Stephanie Schoenwald

“The German economy has been trapped in stagnation for more than two years. Negative and positive growth rates alternate and the bottom line is that gross domestic product is not getting any further. Structural problems and a decline in international competitiveness, combined with weak domestic demand, are a tough pill to swallow. Nevertheless, rising real wages finally had a noticeable impact on consumption in the last quarter. In addition, the cycle of interest rate cuts has begun, meaning that at least slight growth is likely in the coming year. The downside risks include a weaker development on the labour market and, above all, an election victory for Donald Trump.”

Dr Philipp Scheuermeyer

"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."

“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.”

“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.”