In Germany, in September, the harmonized consumer price index showed a decline, ending up at 1.8%.
It is worth noting that the downward dynamic of the mentioned indicator is lower than the preliminary expectations of the experts interviewed by the media regarding the pace of the relevant process. Data on the consumer price index in Germany in the current month on Monday, September 30, were released by the statistics office of this country Destatis.
Experts who were interviewed by the media predicted that the specified indicator for September would be fixed at 1.9%. It’s worth noting that in August in Germany, the harmonized consumer price index was 2%.
LSEG data indicate that in the mentioned country, the specified indicator was last recorded below the 2% mark in February 2021. In this context, it should also be noted that the European Central Bank’s inflation target is 2%.
The dynamic of prices readings is harmonized in the European Union and the eurozone to ensure comparability.
The data, which were published on Monday, indicate that in some large regions of Germany, the harmonized consumer price index decreased more significantly in September compared with the national average. For example, in the most populous federal state of North-Rhine Westphalia, the corresponding figure in the current month was fixed at 1.5% after 1.7% in August.
It is worth noting that inflation below the European Central Bank’s 2% target is currently observed in several eurozone countries. For example, data was published last week, according to which the corresponding indicator fell below the mentioned target in France and Spain. It is worth noting that in this case statistical information for September is meant.
On Tuesday, October 1, flash data on inflation in the eurozone will be released. Investors will pay close attention to the relevant information. Based on this data, they will form their forecast about the probability of another interest rates’ cut by the European Central Bank. It is worth noting that this month the European financial regulator decided to lower the cost of borrowings for the second time since the beginning of the current year.
Core inflation in the eurozone in September was fixed at 2.7%. It is worth noting that in August the corresponding figure was 2.8%. The price increase showed a moderate decrease. It is also worth noting that the mentioned indicator does not take into account food and energy costs. In the current month, energy costs in the eurozone fell by 7.6%.
Sebastian Becker, economist at Deutsche Bank Research, said in a note published on Monday that German inflation could pick back up by the end of 2024. The expert underlined that the relevant assumption is based on the expectation that the base effects will weaken or even reverse.
Sebastian Becker said that the inflation problem is not completely resolved, given the data released on Monday. According to the expert, to solve the corresponding problem the still elevated core inflation should decrease significantly. Sebastian Becker noted that this decline is still outstanding. Also, according to the expert, the continued wage pressure means that core inflation and service sector inflation will likely decrease slowly.
On Monday, Carsten Brzeski, global head of macro at ING, said that the information on the dynamic of prices in Germany in September is another strong argument in favor of the fact that officials of the European Central Bank should decide on another interest rates’ cut during the monetary policy meeting in October. According to the expert, a series of disappointing indicators of economic sentiment and lower-than-expected inflation data provided new reasonings for those officials of the mentioned financial institution who adhere to the so-called dovish position. Implicit in this case is a stance in favor of monetary policy easing.
In Germany, in September, inflation in the local service sector decreased to 3.8%. In August, the corresponding figure was recorded at 3.9%.
The Ifo Institute, one of Germany’s largest economic think tanks, said fewer and fewer companies are seeking to raise prices. Its index of price expectations fell to 13.8 points in September from 16.1 points in August.
Timo Wollmershäuser, Ifo’s head of economic research, said that the economic crisis is reducing the scope of companies to raise prices. The expert also predicts that in the coming months, the inflation rate in Germany will be below the 2% mark.
It is worth noting that on Monday the media released the information according to which the German government intends to revise its economic growth forecast for 2024. In this case, it implies a deterioration in expectations regarding the mentioned process. The media released relevant information, referring to insiders who are aware of the intentions of the German government, which are still being discussed in the so-called backstage format. Informants of journalists claim that Berlin, as a political center, can officially announce the absence of expectations of any economic growth in the current year. The German government has not yet made any statements on this matter. It is worth noting that the economy of the mentioned country is one of the largest in the eurozone, which is why its condition is a factor of sensitive impact on the situation in the entire relevant region.
Insiders claim that the most optimistic scenario provides that German officials will revise the specified forecast, transforming it into an assessment of the prospects that envisages the expectation of the realization of the stagnation script. At the same time, the previous opinions of Germany’s authorities regarding the foreseeable future in an economic context were more optimistic. Berlin was expecting an upward dynamic. The corresponding forecast provided for economic growth of 0.3%.
Insiders who spoke with media representatives used the right of anonymity. They noted that in this case, information related to the category of confidential is meant. Forecasts for the dynamic of the German economy are still being discussed outside the public space.
Experts interviewed by the media expect that the general data on inflation in the eurozone in September, which will be published on Tuesday, will show a decrease in the corresponding indicator to 1.8% from 2.2% in August. The European Central Bank expects price growth to accelerate by the end of 2024. This financial regulator also predicts that a steady return of inflation to the target of 2% will be recorded only at the end of 2025.
The materialization of the European Central Bank’s forecast and review of Berlin’s projection will mean another difficult or even, in a sense, lost year for the economy of the eurozone. The mentioned region has recently been facing the negative impact of such a global factor as geopolitical tensions. Also, the economy of the eurozone is recording damage against the background of weak consumer demand in China. Moreover, in this context, it is worth noting that Beijing is making attempts to pivot to the production of electric vehicles. The appropriate circumstance is also a source of sensitive impact on the economic situation in the eurozone.
All mentioned factors are fully reflected in the condition of the German economy. The latest news indicates that the number of reasons for a positive perception of the prospects of the specified economy is rapidly decreasing. In this context, Volkswagen AG’s threat to close factories in Germany should be mentioned. Also, Intel Corp’s decision to postpone investments worth 30 billion euros ($33.5 billion) in the construction of a new chip manufacturing plant in the east of the specified country cast another shadow on the prospects of the country’s economy. This means that the so-called bright future will not become a reality in the coming months and, most likely, years.
One of the insiders said that for the prospects of the dynamic of the German economy, the potential return of Donald Trump to the White House is a risk factor. According to this interlocutor of journalists, Berlin is heading towards a perfect storm which could depress gross domestic product (GDP) even further.
Economist Jamie Rush said on Monday that the fact is that things are looking pretty dicey for Germany. According to the expert, there will be a persistent weakness in the mentioned economic system, which will eventually become more structural than cyclical. In this context, Jamie Rush also noted that Germany has long-term problems that need to be addressed in terms of its competitiveness.
German bonds held losses after data on the dynamic of the consumer price index was published in September. The two-year yield traded three basis points higher on the day at 2.1%, which is the lowest level in the last two years.
It is worth noting that the growth of yield bonds has been recorded in Europe recently. The corresponding tendency is because markets currently expect with a significant degree of confidence that in October the European Central Bank will decide on another lowering of the cost of borrowing.
Currently, traders estimate an 80% chance that the European financial regulator will cut interest rates by a quarter point next month. The corresponding expectations are based on the fact that the signs of a slowdown in the eurozone economy are becoming more and more distinct and obvious.
A spokeswoman for the German Economy Ministry did not comment on insider information about the change in the assessment of growth prospects, noting that Economy Minister Robert Habeck will soon present an updated government forecast in Berlin.
It is worth noting that a potential alteration in the vision of the most likely dynamic of the economy in the direction of deterioration may become a kind of political event. The lack of growth will actually be evidence of the failure of the German coalition government and a blow to the reputation of Chancellor Olaf Scholz. For two consecutive quarters, the economy of this country has not shown an upward dynamic.
The media claim that Olaf Scholz has fewer and fewer opportunities to achieve any significant positive results before going to voters. The German elections are less than a year away. It is worth noting that voter discontent has already been recorded during the elections to the European Parliament and in the eastern states.
The German government’s assessment of the prospects for the dynamic of the economy will largely depend on industrial orders and output data due shortly before the release of its updated forecast for GDP next week. This was stated by insiders.
Media informants also noted that officials of the German Ministry of Economy are still working on a new forecast.
The potential deterioration of economic growth prospects will dent tax revenues. Under this scenario, Olaf Scholz’s ruling coalition will face difficulties on its way to closing a budget gap in the 2025 finance plan. Insiders noted. In such a case, Berlin would have the opportunity to increase net new borrowing by about $2 billion. There is a rule in Germany allowing the government to take on more debt in times of difficult economic situations.
Drawing attention to a retrospective analysis of the history of the German economy, it is worth noting that just over a hundred years ago Berlin found itself in an even more difficult strait compared to the current conditions and circumstances. After the defeat in the First World War and against the background of the conditions of the Treaty of Versailles, the German economic system plunged into a condition that can be described as a deep and comprehensive downturn. Hyperinflation has become the most sensitive and noticeable form of existence of this state of affairs. In 1918, the exchange rate of the German national currency was 8.9 Reichsmarks per US dollar. Five years later, the corresponding figure rose to 4.2 trillion Reichsmarks. In this case, there was more than rapid growth. In the mid-1920s, Germany experienced a period of comparative prosperity, which ended against the backdrop of the Great Depression that began in 1929. In this context, it is worth noting that the improvement of the situation in the German economy was a reality formed based on borrows received by Berlin from New York banks.
