Germany – Early Bird with tailwind

The early bird continues to fly higher, reaching 34 points in December, up from 30 points in November. The key factors here were the looser monetary policy and the improved business climate abroad. The real interest rate has also fallen as a result of the ECB's lower key rates. This could particularly benefit the manufacturing industry in Germany, as lower interest rates make it easier to purchase machinery and other capital goods. We expect the ECB to cut key rates further this year, thereby providing a positive stimulus for the German economy.

The global economic environment is also improving at a low level. The ISM index, an economic indicator for the US, continued to climb in December, and sentiment among purchasing managers in the euro area also recovered slightly in December. Overall, however, the global economic environment remains difficult. There are no signs of relief.

Meanwhile, the effective exchange rate has hardly changed. Although the euro depreciated at the end of last year, which in itself makes German exports cheaper on the world market, price increases for intermediate goods and wage growth in Germany are simultaneously worsening the competitiveness of German companies on the international market.

The Early Bird indicator is fueling the principle of hope. In particular, falling key interest rates worldwide should increase demand for German capital goods both at home and in partner countries. However, the interest rate cuts will only have their full positive effect on the German economy in the second half of the year. As a result, gross domestic product is likely to continue to stagnate in the winter half-year and only rise slightly later this year. In view of the numerous structural problems in Germany, we expect only a weak recovery in the German economy for the whole of 2025.

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