European Economics Analyst_ 10 Questions for 2025 (Stehn)

Summary of Key Points from the Conference Call Industry Overview - The report focuses on the Euro area and UK economic outlook for 2025, highlighting growth forecasts, inflation trends, and labor market conditions [2][4][46]. Core Insights and Arguments 1. Euro Area Growth Forecast: - Expected growth of 0.8% in 2025, below the Bloomberg consensus of 1% due to structural headwinds in manufacturing, fiscal drag, and trade tensions [2][4][14]. - Quarterly growth forecast: 0.2% in Q1 and Q2, 0.1% in Q3, and 0.2% in Q4 [14]. 2. Recession Risk: - No recession anticipated, with a 30% risk of significant recession due to labor market deterioration [15][19]. 3. Unemployment Rate: - Projected to rise to 6.7% by early 2026, influenced by a softening labor market [20][24]. 4. Wage Growth: - Wage growth is expected to normalize to around 2% by the end of 2025, with current compensation-per-employee growth at 4.4% [25][29]. 5. Core Inflation: - Anticipated to reach 2% by the end of 2025, despite some fluctuations due to energy prices [30][32]. 6. European Central Bank (ECB) Policy: - ECB expected to implement sequential 25 basis point rate cuts, reaching a deposit rate of 1.75% by July 2025 [33][36]. 7. Germany's Fiscal Policy: - Limited fiscal expansion expected post-election, with potential reforms yielding only modest growth effects [37][39][41]. 8. France's Deficit Target: - Deficit projected to decrease to 5.7% of GDP in 2025, slightly above the government's target range [42][43]. 9. UK Growth Outlook: - Forecasted growth of 0.9% in 2025, significantly below consensus estimates due to various economic headwinds [46][49]. 10. Bank of England (BoE) Rate Cuts: - A 25 basis point cut in February is likely, with further cuts expected throughout the year [52][55]. Additional Important Insights - Trade Tensions: - US tariffs under the Trump administration are expected to create significant trade policy uncertainty, impacting Euro area growth [8][51]. - Consumer Spending: - Anticipated moderation in consumer spending growth in the UK due to slowing real disposable income growth and rising remortgaging costs [49][50]. - Investment Support: - The European Recovery Fund is providing some positive fiscal support, but not enough to counteract contractionary national policies [11][14]. - Regional Economic Resilience: - Southern Euro area countries like Spain, Portugal, and Greece are expected to show resilience due to strong services growth and investment support [19][20]. This summary encapsulates the critical insights and forecasts regarding the Euro area and UK economies as discussed in the conference call, providing a comprehensive overview of the anticipated economic landscape for 2025.