DAX: German Inflation and Economic Outlook: A Pivotal Moment in Uncertain Times

German Inflation and Economic Outlook: A Pivotal Moment in Uncertain Times

As we approach the release of Germany's inflation rate figures on November 12, 2024, economists and market watchers are keenly anticipating what these numbers will reveal about Europe's largest economy. Especially after last week!

Anticipated Inflation Figures

Based on the preliminary YoY readings which came in hotter than expected at 2% rather than the 1.8% anticipated, the final German inflation rate for October 2024 is expected to come in at 2%.

 This figure represents a significant slowdown compared to the same period last year when inflation stood at 3.8%.

Year-on-Year Comparison and Economic Implications

The projected decrease in inflation from 3.8% to 2.0% suggests several key points about the German economy:

1. Cooling Trend: The lower inflation rate indicates a cooling of the economy, with price pressures easing considerably over the past year.

2. Policy Effectiveness: This decline can be partially attributed to the European Central Bank's (ECB) tightening monetary policy, which has helped bring inflation closer to its 2% target.

Economic Expansion vs. Cooling

Alongside a lower inflation rate, we also have some other factors we should consider:

1. GDP contraction: Despite inflationary pressures easing, Germany had posted its 6^th consecutive quarter of no growth in its GDP and currently lies at a an estimated -0.2% YoY GDP decline for 2024.

2. Labor Market: Employment rates remain high, around 77.4% which is just 0.1% away from the quarter with the highest employment, this shows the notion of an ongoingly resilient economy.

3. Industrial Production: There's been a slight uptick in industrial output, suggesting that the manufacturing sector is recovering despite global challenges which have now got harder with potential Tariffs from Donald Trump.

4. ZEW Current Conditions: These are still low at -86.9 points in October 2024 which is not lower than April and May of 2020 but still shows low confidence in the current conditions.

Impact of Donald Trump's Re-election on the German Economy

The return of Donald Trump to the US presidency could further add to the uncertainty in Germany and possible effects in the German CPI numbers.

1. Trade Relations: Potential for renewed trade tensions, given Trump's previous stance on tariffs and trade deficits. Could have effect of lower sales from domestic products to the US.

2. NATO Spending: Increased pressure on Germany to boost defense spending could impact fiscal allocations. With Trump vowing to withdraw from Ukraine, the EU will need to increase its defense spending.

3. Climate Policy: The German coalition had until recently diverging approaches to climate change and could affect German industries, particularly in the renewable energy sector. With

Conclusion

As Germany prepares to release its latest inflation figures, the economy appears to be navigating a path of moderate cooling rather than contraction. The anticipated inflation rate of 2.0% suggests that price pressures are easing, potentially setting the stage for more balanced economic growth.

However, the current political uncertainty in Germany, coupled with the potential economic ripple effects of Donald Trump's re-election in the US, adds layers of complexity to the economic outlook. While the fundamentals of the German economy remain solid, policymakers and business leaders will need to navigate these domestic and international challenges carefully.