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It has not even been a week since the German election and the presumptive next Chancellor, Friedrich Merz, is already dealing with a fiscal dilemma. Specifically, how to finance the increase in defence and public infrastructure spending that Germany …
28th February 2025
Metals, minerals, and oil are in Trump’s sights There were three key commodity-related developments from the White House this week. First, the US and Ukraine have agreed to jointly develop Ukraine’s energy and mineral reserves. We wrote about the key …
Things change quickly with Trump as President. Only two weeks ago, the title of our UK Economics Weekly was “Trump’s tariffs tirade becomes more troubling for the UK” as it looked as though the UK’s goods exports to the US would be hit with a 25% …
Europe Commercial Property Chart Pack (Q1 2025) …
Euro-zone inflation drops back in February National data published so far suggest that euro-zone headline inflation dropped back in February, and that core inflation might have finally started to come down more significantly. (Euro-zone data due on Monday …
Rebound in domestic demand could slow pace of rate cuts The strong 1.7% q/q expansion in the Turkish economy in Q4 appears like a setback to the central bank’s efforts to bring down high inflation, but we don’t think this data is enough to throw the …
This page has been updated with additional analysis since first publication. Housing market maintaining momentum as the wider economy is losing it Some of the bigger-than-expected 0.4% m/m rise in Nationwide house prices in February (consensus and Capital …
The EU’s Clean Industrial Deal and Omnibus packages mark a shift in climate policy as pushback against the costs of climate action grows. With the EU less willing to impose costs on the private sector, there is a growing risk that it does not follow …
27th February 2025
An end to the war in Ukraine would fundamentally change the economic outlook for Russia and Ukraine, but a lot would depend on the nature of any peace agreement. A deal that involves large-scale sanctions relief for Russia would be the most positive for …
President Trump’s attempts to reset relations with Russia have led some to suggest that he may be attempting to break apart the Sino-Russian alliance as Nixon did in the early 1970s (although in Nixon’s case, by reaching out to China). But while this may …
ECB set to cut deposit rate by 25bp next week, decision probably unanimous. We expect more dissent over future decisions, and chance of a pause in April has risen. But we still think the ECB will cut rates by more than most expect this year. The ECB looks …
It is very unusual for the Bank of England to be cutting interest rates when inflation is above the 2% target and is expected to rise further. There’s a growing risk, then, that inflation fears will force the Bank to stop cutting rates. Equally, though, …
ESIs point to stronger growth, higher inflation The European Commission's Economic Sentiment Indicators for Central and Eastern Europe (CEE) suggest that regional growth may hold up a little better than we had been expecting in Q1. That said, firms’ …
EC survey points to a weak economy but sticky inflation Surveys so far this year, including today’s EC survey for February, suggest the economy remains very weak while inflationary pressures are still somewhat elevated. While the ESI did increase in …
This Update answers some key questions on the recently agreed US-Ukraine minerals deal. In short, estimates of Ukraine’s mineral wealth seem to be overblown. The deal may provide more US support for Ukraine in peace talks, but Russia and Ukraine remain …
26th February 2025
The acceleration in house price growth in January suggests the housing market has maintained momentum as the wider economy is losing it. What’s more, our forecast for mortgage rates to fall further than is widely anticipated suggests the market will …
The Prime Minister’s announcement that defence spending will rise from 2.3% of GDP now to 2.5% by 2027 is likely to be only the start of a more substantial and longer-lasting increase in defence spending that could be funded by cuts to public spending …
25th February 2025
We think that there is likely to be substantial additional borrowing by European governments in the coming years to fund higher defence spending. This could amount to anything from 0.3% of GDP per year to 1.5%. Most will probably be financed nationally …
Industrial property has been a clear winner over the past five years, with double-digit annual rental growth far outpacing expectations. However, as we predicted early on, supply has been responsive and, combined with a normalisation in demand, those …
MNB on hold ... and probably for some time The Hungarian central bank (MNB) left its base rate on hold again today, at 6.50%, and we think that its easing cycle will remain on pause throughout 2025. That’s a more hawkish view than the latest consensus …
The decline in euro-zone negotiated wage growth to 4.1% in Q4 last year is likely to be followed by further large falls this year. This is because tax-free one-off wage payments which lifted German wages during 2024 will not be repeated and the …
While some Russian pipeline gas flows into the EU could resume as part of any Ukraine-Russia peace deal, at most such supplies would probably only recover to about a quarter of pre-invasion levels. From an energy price perspective, the looming ramp-up …
24th February 2025
January’s inflation data show that domestic price pressures are strong but easing. We remain convinced that they will decline much further this year. Data released this morning confirmed that euro-zone headline inflation edged up from 2.4% in December to …
Judging by the muted market reaction, investors don’t seem too bothered about the German f ederal election , which took place on Sunday. Notwithstanding the risk-off mood in global markets since the US open, which left Germany’s markets more or less …
BoI leaves rates on hold, but getting closer to easing The communications accompanying the decision by the Bank of Israel (BoI) to leave its policy rate on hold again today, at 4.50%, were slightly less hawkish than at the previous meeting, and support …
Following yesterday’s federal election in Germany, this Update answers questions raised by clients in our on-line briefing (which can be viewed here ). What are the key takeaways from the election itself? The CDU’s leader, Friedrich Merz will be the next …
Ernest Hemingway’s line about bankruptcy happening “gradually, then suddenly” can apply to the geopolitical mood too. The head-spinning recent turn of events around Trump and Putin, the war in Ukraine and the future of European security has seen …
Polish economy starts 2025 on the front foot The stronger-than-expected activity data out of Poland for January suggest the economy has carried over some of the positive momentum from the end of last year. Alongside the recent strength of inflation, this …
Merz next chancellor but coalition composition unclear There was never any doubt that the centre right CDU would come out on top of the German federal election and that its leader Friedrich Merz would become the next German Chancellor . The first exit …
23rd February 2025
Europe scrambles amid warming US-Russia ties The plans announced by the US and Russia to improve relations and seek an end to the war in Ukraine have sent shockwaves across Europe and caught many off guard. The possibility that a peace deal is negotiated …
21st February 2025
Euro-zone exports have performed poorly for several years and the outlook is poor even if the EU does not get into a trade war with the US. We suspect that US tariffs will be only a small additional drag, but there is a lot of uncertainty and the hit …
It's been an extraordinary week in geopolitics, with direct US-Russia talks, a war of words between Washington and Kyiv and Europe swept by fears about the end of the US security backstop. But how much has really changed? Group Chief Economist Neil …
Another week, another tariff threat President Trump announced earlier this week that he plans to impose tariffs on imports of vehicles, pharmaceuticals and semiconductor chips on the 2 nd of April, initially at 25% but potentially “very substantially …
The news on inflation this week was worrying, raising the risk that CPI inflation will remain higher for longer and interest rates will be cut more slowly than we expect and/or not as far. (See here .) Data released this week revealed that wage growth was …
This page has been updated with additional analysis since first publication. PMIs point to businesses cutting employment to cope with higher taxes. The composite activity PMI was unchanged in February, which is consistent with the economy moving sideways …
Economy unlikely to have picked up in Q1 February’s Flash Composite PMI provides more evidence that, after expanding by only 0.1% in Q4, the euro-zone economy remains all but stagnant in Q1. The euro-zone Composite PMI was unchanged in February at 50.2, a …
This page has been updated with additional analysis since first publication. Bad news continues for the Chancellor While January’s disappointing public finances figures may not be as bad as they first appear, they continue the run of bad news for the …
This page has been updated with additional analysis since first publication. Supermarkets win, restaurants lose The leap in retail sales volumes in January shows that the retail sector shot out of the blocks at the start of the year. But some of that …
Talks between the US and Russia have raised expectation about an end to the war in Ukraine, but we are not yet factoring a peace agreement into our forecasts. Even if a deal is reached, the macroeconomic implications would crucially depend on the features …
20th February 2025
Hotels have seen a considerable turnaround in the past five years given the near-existential threat that the pandemic posed to the sector. Having bottomed last year, we expect values will grow in the coming years, with a pick-up in consumer spending …
Germany’s next government looks set to cut taxes and, if the parliamentary maths allow, reform the constitutional fiscal rule. It is also likely to be firmer in its support for Ukraine even as support from the US wanes and to advocate an increase in EU …
Overview – The economic outlook has worsened over the past couple of months, which supports our call that the recovery in commercial property will be modest by past standards. Admittedly, interest rates are set to fall back. But with the spread over gilts …
19th February 2025
Europe Commercial Property Valuation Monitor (Q1 2025) …
Whereas political pushback against the cost of climate action is hindering policy in North America and Europe, the tailwinds from China’s low-cost green technology exports are becoming more concentrated in emerging markets more aligned with China. The …
This page has been updated with additional analysis since first publication. Climb in inflation to 3% will be uncomfortable for the BoE CPI inflation took another step up from 2.5% in December to 3.0% in January (consensus, BoE, CE 2.8%) and will probably …
The decision by the US and Russia to “lay the groundwork” to end the war in Ukraine marks a potentially significant turning point after three years of conflict. Negotiations will take time and the macroeconomic implications will depend on the features of …
18th February 2025
This page has been updated with additional analysis since first publication. Weak employment, but wage growth still too high for BoE’s liking While there was a small improvement in labour market activity in December and January, employment growth remains …
Increased defence spending in Europe would in our view point not only to higher bond yields but also to wider spreads with German bonds. While industrial equities would presumably benefit, they might not keep outpacing their US peers. For decades, defence …
17th February 2025
European governments are poised to further scale up their plans for defence spending in the coming years which should benefit the equity prices of European defence companies, but the boost to GDP is likely to be small. As things stand we think the bulk of …
With return-to-office policies again hitting the headlines in the last week we are highlighting our recent notes on the outlook for remote work across the markets we forecast. In the first two of those, we pushed back against the idea that in the next few …
