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German Economic Decline Raises ECB Rate Cut Tensions as Markets Watch US Consumer Confidence

German economy decreases in the last quarter of 2024 by -0.2%, the decline was forecasted for the largest economy in EU. The main contribution to this downfall of economic growth was a significant decline in exports of goods and services. With Q4 being the biggest drop off for GDP-figures quarter on quarter for Germany since 2020, lead to that the annual performance retracted by 0.2% annually. Germany has faced many challenges like international competition on goods and services, higher energy costs and elevated interest rates. All these challenges while there has also been political uncertainty of who will run the country (election took place on Sunday and will now be led by CDU (Christian Democratic Union of Germany). With CDU claiming most voters, they will still have to form a coalition as they only claimed 28.52% of the mandate in parliament.

With GDP-figures declining for Germany, the tension will rise for ECB at their upcoming meeting of lowering interest rates. This morning, we have not seen much effect on markets and both EUR/GBP and EUR/USD are unchanged since its opening. For this afternoon we do have some US data being released, with consumer confidence being released at 3pm. Expectations is that we will see a slight decrease down to 103, from its previous levels of 104.1. Overall consumer confidence is still sitting above the equilibrium point of 100 – which indicates trust from consumers.

Inflationary threats for the UK have recently been raised from energy regulator Ofgem, stating that energy prices are expected to rise more than forecasted by April. A potential increase of 6.4%, would see household’s disposable incoming being squeezed and more than likely forcing household to focus on essential goods and lower spending power, which could impact the retail sector. With pressure on inflation levels, the latest from BoE to hold off on interest rate cuts is looking more cemented after this release.

GBP/EUR 1.2044 GBP/USD 1.2611 GBP/AED 4.6345
GBP/AUD 1.9929 GBP/CHF 1.1304 GBP/CAD 1.7997
GBP/NZD 2.2084 EUR/USD 1.0461 GBP/ZAR 23.2200

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