Faced with uncertainty over the new administration’s tariff policy, US stock markets are weakening. As outlined in Fathom’s Global Outlook, Spring 2025, European economies could also be hit hard due to American tariffs. However, despite this lingering threat, mid-to-large cap German stocks have outperformed (as have small caps, albeit to a lesser extent). Most recently, discussions of loosening a long-held ‘debt brake’ to boost defence and infrastructure spending has further supported financial markets in Germany. Across the Atlantic, tariffs on Canada, Mexico and China have resulted in a sharp decline in US stocks, as threats of a trade war and

As 2024 comes to a close, economic and political volatility seem to be at the forefront in the euro area, but in the US the economic outlook appears optimistic. On Thursday 5 December, Michel Barnier resigned as French Prime Minister following an overwhelming no-confidence vote against him which was supported by 331 MPs. The vote was submitted on Monday by the far-right National Rally party after Mr Barnier attempted to use Article 49.3 of the French Constitution to force a budget through parliament without a vote. The budget, which fell through, had included tax hikes and spending cuts to the

In our Global Outlook, Autumn 2024, we argued that the euro area was much more likely than the US to go ‘Back to BC (before COVID)’, with interest rates, inflation and economic growth rates converging more rapidly towards their pre-pandemic levels. Emerging data since we put that forecast together do not challenge this view. One of the key characteristics of the pre-pandemic economic environment was real (inflation-adjusted) interest rates in negative territory. Rates went even further below zero during COVID as inflation rose, forcing a synchronised policy-tightening by major central banks. However, as the chart below shows, the expected real

Euro area annual headline inflation was unchanged in April at 2.4 per cent while underlying inflation (headline excluding energy, food, alcohol and tobacco) fell 0.3 percentage points to 2.7 per cent, the lowest recorded figure since January 2022. Compared with March, headline prices rose 0.6 per cent, slightly more than the historical average for this month, driven by higher-than-normal rises in the price of services. The inflation print was broadly in line with the European Central Bank’s March projections (which see both measures of inflation returning to the two per cent target around the middle of next year). Fathom’s Global

The euro area’s headline annual inflation rate was 2.4% in March, according to estimates released by Eurostat on 3 April, with the core inflation rate at 2.9% — both down 0.2 percentage points since February. With headline inflation approaching the 2% target, if core inflation continues decreasing the European Central Bank might soon start cutting rates. Services inflation remains at 4%, however, so the central bank may well be cautious about cutting rates at its next meeting, on 11 April. But records from the ECB’s March meeting state that the central bank is increasingly confident that a rate cut is

The recently released IFO survey indicates that Europe’s largest economy, Germany, has continued to weaken after entering a technical recession in the second half of 2023. The headline measure sank in February, with businesses reporting worsening in both current conditions and expectations in relation to future sales. At face value, this implies that the economy has continued to contract throughout the first quarter, albeit at a slower rate than was seen in the second half of 2023. Some of the headwinds the German economy faced last year have abated. Headline inflation dropped from 8.7% in January 2023 to 2.9% in

According to the flash estimate released on 31 July, the euro area returned to growth during the second quarter of this year, with economic activity increasing by 0.3%. In our latest Global Outlook Summer 2023, finalised early June, we changed one of our key calls and we no longer anticipate a global recession this year. The sharpest falls in real wages are now behind us and, in the US, real wages are rising. With a few exceptions, most major economies look to have navigated through the cost-of-living crisis while avoiding a period of economic contraction. They have dodged one bullet,

Euro area GDP expanded by 0.2% in the third quarter, confounding Fathom’s expectations that the currency bloc was already in recession. Strong household consumption in Germany helped to boost activity, but with 11.7% inflation in October, this appears to be an unsustainable source of growth. Indeed, momentum has clearly eased across the bloc, from a 0.7% quarterly average in the first half of the year. Fathom’s view that the euro area was in recession may have discounted the strength in services spending, including tourism, following two years of heavy restrictions. It’s also possible that an historically higher savings rate will