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Tariffs risk recession - a forecast update
President Trump announced sweeping ‘reciprocal’ tariffs based on the size of the bilateral trade deficit. We expect both the US and the eurozone to slow sharply and only just skirt a recession, while the US will also have to deal with higher inflation. Monetary policy divergence is likely to re-emerge as a theme, with the ECB cutting rates further but the Fed remaining on hold. Fiscal stimulus should help drive a eurozone recovery in 2026, but growth improvement in the US next year will be more tepid.
German bazooka will lift growth but tariff threats loom large
The announcement on Tuesday evening of game-changing reforms to Germany’s debt brake are likely to significantly change the growth outlook. There were three main consequential announcements: 1) a €500bn infrastructure fund, 2) spending on defence above 1% of GDP to be exempt from the debt brake, 3) German länder can now borrow up to 0.35% of GDP (previously zero).
Global Monthly - Cracks emerge amid tectonic shifts
The fracturing of the transatlantic alliance is going to mean higher defence spending in Europe over time, though the immediate macro-economic implications of this are likely to be modest. The most imminent threat still comes from higher US trade tariffs, with a host of measures due as soon as next week. Last month, Trump blinked at the last moment on the biggest tariff rises, will souring confidence in the US make him do so again? Spotlights: 1) European defence spending: We summarise the available options for an increase and the macro implications; 2) German election: We look at the likely policy agenda of the new GroKo.
Rates Conviction - EU defence spending could shake EGB market
Recent comments by Trump regarding Russia and Europe have suggested a diminished US commitment to NATO, prompting European nations to significantly increase their defence spending.
ESG Strategist - Climate disasters to exacerbate European fiscal deficits
Global warming is resulting in a rising number of climate and weather-related disasters. Although annual data is volatile, the costs of these disasters as a share of GDP are on a rising trend and expected to continue increasing during the coming years, even in a favourable 1.5°C global warming climate scenario where the targets of the Paris Agreement are met. In a previous research note ‘Which EU countries will suffer the most from extreme climate disasters?’ [1] we focused on the economic impact of climate and weather-related disasters in the EU at an individual country level under various scenarios of global warming. In this note we look more in depth at the impact on the public finances for a number of EU countries, namely their debt ratio levels, the impact on sovereign yields, and, ultimately, on their sovereign ratings.
Is Germany still the safe bet in Europe?
The German public will shortly go to the ballot box, in an important election for Germany and Europe. As well as immigration and defense, the economy is increasingly a major election theme. After two years of contractions, the economy is projected to grow again this year, but by just 0.5%. In this Euro Rates Watch we look from an investors point of view to the German elections.
Economic Outlook 2025 - Webinar - The year of the tariff
Video of ABN AMRO's Group Economics webinar on the economic outlook for 2025.
Euro Rates Watch - France political turmoil: Navigating Potential Collapse French Government
France is currently facing a significant political crisis that threatens the stability of its government and the approval of the 2025 Budget. As negotiations intensify, the far-right opposition, led by Marine Le Pen, has expressed willingness to support a no-confidence vote against the government if certain budgetary demands are not met. This precarious political landscape has heightened concerns about the country's fiscal outlook, with the likelihood of the public deficit exceeding the previously announced 5% deficit for 2025. The ongoing turmoil suggests that even if immediate government collapse is avoided, the French political environment will likely remain volatile, impacting economic growth and market confidence.
Global Watch – Republican sweep raises risks to the outlook
Republican clean sweep makes it significantly easier to implement full policy agenda. Risks very firmly tilted to the downside for US and global economic growth and to the upside for US inflation. While Fed policy could be tighter than our current base line, the ECB could cut rates faster. Republican sweep sets the stage for US-European rates divergence. Parity for EUR/USD could be on the cards. We will publish an updated macro and market base scenario later this month.
Fed Watch - Update on our Fed view
Now that the dust from the financial market turmoil around the weekend has settled a bit, we can have a clearer view on what recent events imply for the Fed rate path. Inflation is coming down in line with expectations, but headline labour market figures are deteriorating at a more rapid pace than initially expected. The deteriorating labour market increases the urgency to cut, and the resulting decrease in wage pressures allows the Fed to be less cautious. We therefore remove the two pauses from our base case Fed path. We now expect a 25bp cut in every meeting until the upper rate reaches 3.00% in November 2025. Given currently available data, we do not yet see a reason for an initial 50bp cut.