Are we all too optimistic about Europe?
Your bet does not expect to see the eight words printed this year, right? I also don’t, if I’m honest. We European economists do not know what to do with ourselves; We are not at all programmed for this unbouned level of positive.
But two things can be right at once. The wave of fiscal activism released by German spending can really lift the continent from malaise during the decade. It can also make almost no difference in the growth story in 2025.
Maybe I became an overdramatic (an economist, dramatic? Never!). However, it should be noted how my colleagues only make minimal changes to their 2025 growth estimates. Simply put, the upcoming trade war still looks like a far greater agreement for the Euro Euro Euro economy and this summer than the government budget encouragement.
Remember that we are a little more than a week than the publication of Trump administrative investigations that vary on unfair trade practices and deficits. And for all flip-flopping on Canadian and Mexican tariffs since the inauguration day, we think the potential for and potentially durable in Europe is only a few days away. Our trade expert, Iga, explains more in his latest video.
All of this explains why I still have difficulty seeing Europe’s growth take -off in a significant way this spring. Of course the activity data that we have so far this year is not brilliant.
Looks like ECB agrees. I was shocked by how even some members of the Government Council who were more hawkish did not rule out the decline in other tariffs in April.
That is not our basic case, but talking to our ECB teacher, Carsten Brzeski, he considers detention at the next meeting certainly not an agreement made, at least if Europe found itself in the midst of the Tit-For-Tat trading war that increased rapidly.
As for the large € 500 billion infrastructure fund, the question inherent in my mind is how fast cash can land in the German economy. Of course, political incentives exist to make things move; Carsten reminded us that there was an important country selection next year.
But if it is here in the UK, finding a ready -made project can take time. I remembered the famous car tunnel under the Thames river London, which costs more than £ 1 billion, taken several years, and there has not been a ton of the earth that has been shifted.
Maybe the spread of sad infrastructure is not the only warning story that Britain has to all of Europe. In many ways, England in the next six months. This launched a major change in fiscal rules and a considerable budget drive last October. The increase in bond results and interest rates for Bank of England interest rates will be very familiar to anyone who tracks the current Euro zone loan fee.
But the market movement forced a partial rethinking of the treasury. More money for debt interest means fewer for others. Extensive expenditure cuts are expected to be in the spring statement next week and we think further tax increases cannot be avoided in the next budget coming in the fall.
Although there are major changes to the Budget rules of the European Commission, something that is very similar to the risk of occurs elsewhere. Bond results are higher than a month ago and will continue to increase, seen from the latest estimates of our team. Higher defense expenditure can ultimately require slaughtering in other places, as we see in the UK.
If that happens, then my concern is that the impact of growth will be asymmetrical negative. Savings hit the current economy. Higher defense and infrastructure will not be, either because of domestic production constraints (for the first) or the time of long potential pauses (for the last). I clearly advance a little here, but that is another reason to be aware of a big increase in Europe’s growth this year.
Of course not everything is bad. European job markets remain a bright spot. Like consumer expenditure, as said Bert Colijn, many depend on increasing self -confidence. Speaking of self -confidence, the purchase manager index next week will give us the initial feeling whether the company is quite happy as that implies their soaring stock market assessment.
Europe baths in the sun – literally and metaphorically. But don’t be fooled: Cool April rain is only around the corner. Happy weekend!
Think in the future in the advanced market
United States (James Knightley)
Sentiment (cell): The US calendar is focused on consumers, with sentiment and expenditure number to be released. Consumer confidence has been launched because the household is worried about the impact of slaughtering government efficiency expenses on work and rights. Meanwhile, the threat of tariffs triggers fears of higher prices that can squeeze the power of spending and cause a decrease in living standards. The falling equity market adds consumer concerns about economic outlook.
Inflation (Friday): Chairman of Fed Powell has underestimated a softer sentiment mold, saying that “This reading has not been a good predictor for consumption growth in recent years”. Because of that “We don’t need to be in a hurry [to alter monetary policy]and positioned well to wait for greater clarity. “The amount of February’s private expenditure will be carefully monitored considering that the January number is down 0.2% of mothers in terms of nominal and -0.5% in terms of volume.
English (James Smith)
Inflation (Wednesday): Please headline CPI to dip fractionally, but generally, the trend rises to the top this year. The price of energy is no longer an obstacle to the overall inflation, and that is why CPI is set up to approaching 4% in the second half of this year. Service inflation must show more progress. We hope a little fall for February and further repairs throughout the spring.
Spring Statement (Wednesday): Following the increase in debt interest costs, Chancellors need to find simple savings to make fiscal rules increase once again. Apart from all noise, the impact of this change will not be too large either in the economy or bank of England. But that made some difficult decisions in autumn. We expect further tax increases later this year. Read our complete preview
Think in the future for Central and Eastern European
Poland (Adam Antoniak)
Retail Sales (Monday): February data reading from industry and weak construction. Retail sales reports must bring positive annual figures, which confirm that consumption remains the main engine of economic growth in Poland. Slower annual growth in February compared to January related to the negative calendar effect.
Unemployment: Unemployment remains low and is stable even though it continues to decline in work due to weaknesses of the supply of workers originating from demographic trends. The labor market remains tight because the net entry flow is not as big as the first wave of refugees from Ukraine after the Russian invasion. We hope that unemployment is registered close to the lowest position of all time in 2025.
Hungary (Peter Virovacz)
Interest Rate (Tue): The new era will begin soon, because the meeting of the future tariffs will be the first under the new leadership of Mihály Varga. Although there is a new sheriff in the city, we expect the same results as in the last five months. However, this is the same “city”. With a deterioration of inflation, we did not see space for anything other than Hawkish grip. Speaking of interest rate increases will also be premature because NBH is most likely to see the long -term results of the sidewalk that has just been introduced.
Czech Republic (David Havrlant)
Interest Rates (Wed): CNB Bank Council is likely to provide a supporting vote there is no change in the elementary level because policy makers approach the improvement phase to build a basis for landing of appropriate capital costs. With a stronger headline inflation than CNB that is expected since the beginning of this year, a stronger wage growth, and lighter economic views, we see reasons for Hawkish’s attitude. However, there are some space to ease the overall monetary condition, but this will be executed carefully when a complete new prediction is available.
Source: Ing
