For 2025, Banque Syz has identified ten possible surprises that could impact the markets. One scenario revolves around Germany.
• Banque Syz reveals ten potential market surprises for 2025
• Germany is easing the debt brake and creating tax incentives
• Issuing Eurobonds stimulates European economic growth
In a report, the Swiss private bank Syz has come up with ten surprises for 2025 that are likely to have an impact on the economy, but are sometimes more, sometimes less likely to occur.
Overall, the financial institution is looking positively towards the new year. Banque Syz is assuming a resilient global economy and strong double-digit growth rates for the companies in the market-wide US S&P 500 index and expects lower real interest rates in developed markets.
Nevertheless, the bank also points out in its report that existing uncertainties could remain in place in 2025, meaning that the path for global equities is unlikely to be entirely without ups and downs.
Scenario: “Germany is pushing for tax incentives”
With this premise in mind, the Kreditanstalt has come up with its ten surprises, which are likely to have positive, sometimes negative effects. One scenario also affects Germany. This is the title of one of Banque Syz’s surprises: “Germany is pushing for tax incentives”.
In this scenario, the bank assumes that a CDU-led coalition will emerge from the new elections in Germany at the end of February. This would agree on a relaxation of the constitutionally regulated debt brake, so that a higher New debt be made possible. These new funds would then be used to provide the urgently needed incentives to revive the German economy, which has been stagnating since 2022.
Issuance of Eurobonds
At the same time, Germany is willing to talk about issuing Eurobonds in this context. These could in turn be used to finance structural investments that would improve Europe’s growth prospects in the medium term. The EU would thus follow the recommendations that former ECB President Mario Draghi made in a report for the European Commission to improve European competitiveness.
In this way they would Eurozone and Germany will equally benefit from the tax incentives and experience a growth spurt. In addition to Europe, the USA and China would also support the economy with public spending.
Higher national debt
As a consequence, national debt in Germany would increase. However, the increase is more drastic in the Eurozone, as it was already at a high level. Inflation would also rise again in the euro zone as domestic demand increases. In the Banque Syz scenario, this in turn causes the ECB to become more relaxed in the face of higher national debt, rising inflation and higher growth at the same time monetary policy shorter to follow. For this reason, the European Central Bank would end its interest rate cutting cycle earlier than expected.
Eurobonds would eventually come under pressure – due to growing pressure to issue bonds and higher cash interest rates – also as euro yields would rise on better growth prospects.
This closes the scenario, although Banque Syz considers the probability of this to be low.
Fact: Germany’s economy is shrinking
The fact is, however, that the German economy contracted for the sixth month in a row in December 2024, as shown by the collective index for production in the private sector – industry and service providers combined – compiled by S&P Global. This rose slightly to 47.8 points in December compared to the previous month, but the economic barometer signals a downturn below the 50 point mark. According to the report, the industry remains deep in recession, which is accompanied by sharp declines in employment.
The mood in the executive suites of German business also fell more sharply than expected in December. The ifo business climate index fell to 84.7 points, as the Munich ifo Institute reported after its monthly survey of around 9,000 managers. That was the lowest value since May 2020: “The weakness of the German economy has become chronic,” ifo President Clemens Fuest is quoted as saying by Dow Jones Newswires.
And in fact, the various political parties in Germany have already spoken out during the election campaign that they want to help the Federal Republic achieve more economic growth again. However, who will win the new elections on February 23rd remains uncertain. Likewise, one can only speculate as to whether the debt brake will actually be reformed afterwards – especially since, according to the election programs that have already been published, there is great disagreement among the various parties about how the German economy can be given new impetus.
Editorial team finanzen.net