EUROZONE GDP (QoQ) (Q1) 0.4% Forecast 0.2%
EUROZONE GDP (YoY) (Q1) 1.2% Forecast 1.0%

German Retail Sales (MoM) (Mar) -0.2% Forecast -0.4%

German Unemployment Change (Apr) 4K Forecast 16K

German Unemployment Rate (Apr) 6.3% Forecast 6.3%

German GDP (YoY) (Q1) -0.2% Forecast -0.2%

German GDP (QoQ) (Q1) 0.2% Forecast 0.2%

GfK German Consumer Climate (May) -20.6 Forecast -25.6

Fitch Ratings raised its 2025 default rate forecasts for U.S. and European leveraged finance due to a weaker macroeconomic outlook caused by an escalating trade war.

U.S. high-yield bond defaults are now expected to reach 4.0% to 4.5% and leveraged loan defaults 5.5% to 6.0%. In Europe, Fitch forecasts 5.0% to 5.5% for high-yield bonds and 2.5% to 3.0% for leveraged loans.

The U.S. economy is now projected to grow just 1.2% in 2025, while Europe is expected to grow 0.6%. Only one 25-basis point Fed rate cut is forecast for late 2025. Corporate margins, cash flows, and liquidity conditions are deteriorating, while access to funding for highly leveraged and cyclical issuers is tightening.

In the U.S., sectors like autos, retailers, technology hardware, and telecommunications are seen as most vulnerable. Large issuers expected to contribute to defaults include Altice France, Radiate Holdco, Tropicana, Sonrava Health, DISH, At Home Group, and Sunnova Energy. Defaults could be lower if CSC Holdings avoids default this year.

In Europe, sectors impacted by tariffs include automotive, manufacturing, chemicals, and technology hardware. Major European issuers already facing distress include Altice France, Thames Water, Garfunkelux, Ardagh Group, and Kloeckner Pentaplast.

Fitch Ratings has launched the U.S. Effective Tariff Rate Monitor, an interactive tool designed to track and model the U.S. effective tariff rate (ETR), which currently stands at 22.8%. This marks a sharp increase from 2.3% earlier in 2025, prior to newly implemented tariff measures by the Trump administration.

The tool calculates the ETR by accounting for exclusions and carveouts such as those on oil, gas, copper, and pharmaceuticals. It also allows users to simulate scenarios by modifying tariff rates and import levels. For example, applying an additional 25% tariff on pharmaceuticals and electronics would raise the ETR to 27.2%.

Country-specific ETRs show the highest rate for China at 103.6%, with Japan, Mexico, Canada, and Germany each above 10.5%. If current trade levels persist, the U.S. is expected to collect about $748 billion in duties in 2025, equivalent to approximately 2.5% of GDP, although demand reductions due to higher prices may lower this amount.

Fitch warns that increased protectionism has impacted global economic prospects, prompting a downgrade of its 2025 world GDP growth forecast to 1.9% from 2.9% in 2024.

Access the tool and more information: [fitchratings.com](https://www.fitchratings.com)

German Business Expectations (Apr) 87.4 Forecast 85.0

HCOB Eurozone Manufacturing PMI (Apr) 48.7 Forecast 47.4
HCOB Eurozone Composite PMI (Apr) 50.1 Forecast 50.3
HCOB Eurozone Services PMI (Apr) 49.7 Forecast 50.4
Euro Trade Balance (Feb) 24.0B Previous 0.8B

HCOB Germany Manufacturing PMI (Apr) 48.0 Forecast 47.5
HCOB Germany Services PMI (Apr) 48.8 Forecast 50.3

ECB Interest Rate Decision (Apr) 2.40% Forecast 2.40%

ECB Deposit Facility Rate (Apr) 2.25% 2.25%

German PPI (M) (Mar) -0.7% Forecast -0.1%

EURO Core CPI (Y) (Mar) 2.4% Forecast 2.4%
EURO CPI (M) (Mar) 0.6% Forecast 0.6%
EURO CPI (Y) (Mar) 2.2% Forecast 2.2%

EURO Industrial Production (M) (Feb) 1.1% Forecast 0.1%
EURO ZEW Economic Sentiment (Apr) -18.5 Forecast 13.2

ZEW Current Conditions (Apr) -81.2 Forecast -86.0
ZEW Economic Sentiment (Apr) -14.0 Forecast 10.6

German CPI (Y) (Mar) 2.2% Forecast 2.2%
German CPI (M) (Mar) 0.3% Forecast 0.3%

German Industrial Production (MoM) - Feb -1.3% Forecast -0.9%
German Trade Balance - Feb 17.7B Forecast 18.4B

German Factory Orders (MoM) 0.0% Forecast 3.4%

German Unemployment Rate (Mar) 6.3% Forecast 6.2%

GfK German Consumer Climate (Apr) -24.5 Forecast -22.6

German Business Expectations 87.7 Forecast 87.9
German Ifo Business Climate Index 86.7 Forecast 86.8

HCOB Eurozone Manufacturing PMI (Mar) 48.7 Forecast 48.3
HCOB Eurozone Composite PMI (Mar) 50.4 Forecast 50.8
HCOB Eurozone Services PMI (Mar) 50.4 Forecast 51.2

HCOB Germany Manufacturing PMI (Mar) 48.3 Forecast 47.1
HCOB Germany Services PMI (Mar) 50.2 Forecast 52.3

German PPI (MoM) (Feb) -0.2% Forecast 0.2%

Euro Region Core CPI (YoY) 2.6% Forecast 2.6%
Euro Region CPI (MoM) 0.4% Forecast 0.5%
Euro Region CPI (YoY) 2.3% Forecast 2.4%
Wages in euro zone (YoY) 4.10% Previous 4.30%

Euro Region Trade Balance (Jan) 1.0B Forecast 14.0B
Euro Region ZEW Economic Sentiment (Mar) 39.8 Forecast 43.6

German ZEW Current Conditions (Mar) -87.6 Forecast -80.5
German ZEW Economic Sentiment (Mar) 51.6 Forecast 48.1

PPI (MoM) 0.3% Forecast 0.2%

German Industrial Production (MoM) (Jan) 2.0% Forecast 1.6%
German Trade Balance (Jan) 16.0B Forecast 21.0B

Goldman Sachs Research examines the economic impact of increasing defense spending in the European Union. EU member states are expected to raise annual defense expenditures by approximately €80 billion by 2027, reaching 2.4% of GDP. The fiscal multiplier is estimated at 0.5, meaning every €100 spent on defense could boost GDP by €50. A shift toward domestic production is expected to enhance the economic effect over time.

European defense spending has increasingly focused on equipment, rising to 33% of total expenditures by NATO’s European members. While European countries initially imported military supplies following Russia’s invasion of Ukraine, they have historically sourced most defense equipment domestically, with France, Germany, and Italy leading in local production. EU arms manufacturing has been expanding and is projected to grow faster than in the US.

To sustain higher defense spending, EU leaders are considering various funding strategies, including national debt, supranational borrowing, or repurposing existing financial mechanisms. National debt remains the most immediate option, but EU-wide funding, though requiring a longer approval process, would provide more stability. A potential "golden rule" could exempt defense spending from fiscal constraints, though it would require approval from the EU Council and Parliament.

The European Investment Bank (EIB) and the European Stability Mechanism (ESM) are also potential sources of funding, with EIB financing possibly aligning with the industrial expansion needed for increased military production. Goldman Sachs Research anticipates a phased approach, beginning with national debt, followed by repurposing pandemic-related funds, and ultimately establishing a dedicated defense financing facility.

EUR GDP (QoQ) (Q4) 0.2% Forecast 0.1%
EUR GDP (YoY) (Q4) 1.2% Forecast 0.9%

German Factory Orders (MoM) (Jan) -7.0% Forecast -2.4%

Deposit Facility Rate (Mar) 2.50% Forecast 2.50%
ECB Marginal Lending Facility 2.90% Forecast 2.90%
ECB Interest Rate Decision (Mar) 2.65% Forecast 2.65%

HCOB Spain Services PMI (Feb) 56.2 Forecast 55.4
HCOB Italy Services PMI (Feb) 53.0 Forecast 50.9
HCOB France Services PMI (Feb) 45.3 Forecast 44.5
HCOB Germany Services PMI (Feb) 51.1 Forecast 52.2
HCOB Eurozone Composite PMI (Feb) 50.2 Forecast 50.2
HCOB Eurozone Services PMI (Feb) 50.6 Forecast 50.7

Unemployment Rate (Jan) 6.2% Forecast 6.3%

HCOB Germany Manufacturing PMI (Feb) 46.5 Forecast 46.1

German Retail Sales (MoM) (Jan) 0.2% Forecast 0.4%
German Unemployment Change (Feb) 5K Forecast 14K
German Unemployment Rate (Feb) 6.2% Forecast 6.2%
German CPI (YoY) (Feb) 2.3% Forecast 2.3%
German CPI (MoM) (Feb) 0.4% Forecast 0.4%

GfK German Consumer Climate (Mar) -24.7 Forecast -21.7

German GDP (QoQ) (Q4) -0.2% Forecast -0.2%
German GDP (YoY) (Q4) -0.2% Forecast -0.2%

Europe Core CPI (YoY) (Jan) 2.7% Previous 2.7%
Europe CPI (MoM) (Jan) -0.3% Previous -0.3%
Europe CPI (YoY) (Jan) 2.5% Previous 2.5%

German Business Expectations (Feb) 85.4 Forecast 85.2
German Current Assessment (Feb) 85.0 Forecast 86.5
German Ifo Business Climate Index (Feb) 85.2 Forecast 85.9

German households added nearly EUR 100 billion to their deposits in 2024, reflecting a shift toward liquid savings amid a more pessimistic economic outlook. Sight deposits saw strong inflows in the final quarter of the year, reversing previous trends of reallocating funds to higher-yielding options such as time deposits and savings bonds. This shift suggests a growing preference for liquidity, likely due to concerns about the labor market and narrowing interest rate spreads.

Retail bank deposits are expected to continue growing in 2025, despite lower nominal interest rates. Households may prioritize liquidity reserves, especially if job market conditions worsen. However, total savings as a share of disposable income could decline slightly if more funds are directed toward consumption.

Household lending saw only modest growth of 0.9% in 2024, reaching EUR 1,520 billion. Mortgage lending increased by just 1.1%, but demand picked up toward the end of the year as interest rates for new mortgages declined to 3.6%. The easing of monetary policy and lower bank margins supported this recovery, with house prices also beginning to rise moderately. Further rate cuts and potential regulatory adjustments may support mild growth in mortgage lending in 2025.

Consumer loans remained nearly stagnant at EUR 188 billion, increasing by just 0.6% in 2024. High interest rates, averaging 8.3% despite a slight decline, and stricter credit standards contributed to weak demand. Consumers also appear cautious about taking on new debt, given concerns about major expenditures. Banks are expected to maintain strict lending standards in the near term.

Overall, while deposits are expected to rise in 2025, lending growth will likely remain subdued, with mortgages seeing slight improvement while consumer credit remains weak.

**Source: Deutsche Bank Research, "Germany Monitor: Households Return to Liquid Bank Savings and Borrow Cautiously," February 21, 2025.**

HCOB Eurozone Manufacturing PMI (Feb) 47.3 Forecast 46.9
HCOB Eurozone Composite PMI (Feb) 50.2 Forecast 50.5
HCOB Eurozone Services PMI (Feb) 50.7 Forecast 51.5

HCOB Germany Manufacturing PMI (Feb) 46.1 Forecast 45.4
HCOB Germany Services PMI (Feb) 52.2 Forecast 52.4

German PPI (MoM) (Jan) -0.1% Forecast 0.6%

German ZEW Current Conditions (Feb) -88.5 Forecast -90.0
German ZEW Economic Sentiment (Feb) 26.0 Forecast 19.9

German Factory Orders (MoM) (Dec) 6.9% FORECAST 1.9%

Retail Sales (MoM) (Dec) -1.6% Forecast 0.0%

Deposit Facility Rate (Jan) 2.75% FORECAST 2.75%
ECB Marginal Lending Facility 3.15% PREV 3.40%
ECB Interest Rate Decision (Jan) 2.90% FORECAST 2.90%

EUR GDP (YoY) (Q4) 0.9% Forecast 1.0%
EUR GDP (QoQ) (Q4) 0.0% Forecast 0.1%
EUR Unemployment Rate (Dec) 6.3% Forecast 6.3%

German GDP (YoY) (Q4) -0.2% Forecast 0.0%
German GDP (QoQ) (Q4) -0.2% Forecast -0.1%

GfK German Consumer Climate (Feb) -22.4 Forecast -20.5

German Business Expectations (Jan) 84.2 Forecast 84.2
German Current Assessment (Jan) 86.1 Forecast 85.4
German Ifo Business Climate Index (Jan) 85.1 Forecast 84.9

HCOB France Manufacturing PMI 45.3 Forecast 42.4
HCOB France Services PMI 48.9 Forecast 49.3
HCOB Germany Manufacturing PMI 44.1 Forecast 42.7
HCOB Germany Services PMI 52.5 Forecast 51.1
HCOB Eurozone Manufacturing PMI 46.1 Forecast 45.6
HCOB Eurozone Composite PMI 50.2 Forecast 49.7
HCOB Eurozone Services PMI 51.4 Forecast 51.4

EUR ZEW Economic Sentiment (Jan) 18.0 Forecast 16.9

German ZEW Current Conditions (Jan) -90.4 Forecast -93.1
German ZEW Economic Sentiment (Jan) 10.3 Forecast 15.2

German PPI (MoM) (Dec): -0.1% Forecast: 0.3%

Goldman Sachs Research anticipates a 9% total return for the STOXX 600 index in 2025, reflecting modest growth in European stocks amid economic headwinds such as weak growth, manufacturing struggles, and fiscal uncertainties in countries like France, Italy, and the UK. Lower interest rates, expected to drop to 1.75% by mid-2025, could benefit indebted sectors like telecoms and real estate, as well as consumer-facing industries like retail and travel.

The team sees potential opportunities for small- and mid-sized companies due to their sensitivity to lower rates and expected M&A activity, but they remain cautious about cyclical vulnerabilities tied to weak economic growth. Exchange rate fluctuations, such as a weaker euro, could provide competitiveness for European companies but may deter foreign investment.

Growth for European companies relies significantly on markets outside the region, particularly the US and China. While US equity performance has been strong, Goldman Sachs suggests Europe might gain traction if US valuations falter or major economic shifts occur. Lower inflation and reduced interest rates could also improve European stock valuations, offering an upside not fully reflected in current forecasts. goldmansachs.com

The annual inflation rate in the Euro Area rose for the third consecutive month, reaching 2.4% in December 2024, its highest level since July. This marks an increase from 2.2% in November and aligns with market expectations and preliminary estimates. The rise was primarily attributed to base effects, as last year’s steep declines in energy prices no longer impact the annual rate. Energy costs rebounded (0.1% from -2% in November) for the first positive change since July, while inflation for services edged higher (4% from 3.9%). In contrast, inflation slowed slightly for food, alcohol, and tobacco, as faster price growth in processed items (2.9% from 2.8%) was offset by a slowdown in unprocessed food prices (1.6% from 2.3%). Among member states, inflation rose in Germany (2.8% from 2.4%) and France (1.8% from 1.7%) but eased in Italy (1.4% from 1.5%). Core inflation remained steady at 2.7%, while the European Central Bank anticipates inflation returning to the 2% target by year-end.

Act. For. Prv.
EUR Core CPI (YoY) (Dec) 2.7% 2.7% 2.7%
EUR CPI (MoM) (Dec) 0.4% 0.4% -0.3%
EUR CPI (YoY) (Dec) 2.4% 2.4% 2.2%

German CPI (YoY) (Dec): 2.6% Forecast: 2.6%
German CPI (MoM) (Dec): 0.5% Forecast: 0.4%