Lack of growth impetus
A renewed decline in GDP in the second quarter of 2024 means that the German economy has been stagnating for two years now. The German economy is thus at the level it was at before the outbreak of the pandemic. Gross fixed capital formation continues to decline due to uncertainty among companies. Private households are saving their relatively high income growth and are therefore not helping to revitalise the economy. The weakening global economy is also not acting as an economic driver for the export-dependent German economy.
Real income rising again
Despite the rising number of people in employment and rising incomes in real terms, private consumption is weak due to the rising savings rate (from 11.0 % to 11.3 %). The early indicators confirm that consumption is holding back and do not point to a rapid turnaround. Little dynamism is therefore to be expected in the second half of the year. GDP growth will hover around the zero line. A slight recovery is unlikely to materialise before 2025 at the earliest, and there is a risk of continued pessimism.
ECB maintains its course
Inflation pressures continue to ease on the back of weak demand and increasing slack in the economy. Weak growth and lower inflation give the European Central Bank ample room to ease monetary policy. The ECB is therefore maintaining its course and has lowered interest rates by a further 25 basis points in September 2024. We expect two more 25 bps rate cuts until the end of the year.
Risks continue to dominate
The second half of the year will be characterised by a political risk in the form of the US election, which is likely to have a significant impact on future trade policy. Regardless of the outcome of the election, a change in protectionist policies is not expected. Monetary policy is expected to be less restrictive in 2025. Fiscal policy, on the other hand, will remain restrictive due to the debt brake.