Throughout the past year, I have often burdened you with negative economic trends: stagnation of the German economy, de-globalization, climate change, investment backlogs, housing shortages, Trump, and so on. But next week is Christmas, and these lines should also convey a somewhat more festive mood. Therefore, I offer a decidedly positive year-end review. Today, the glass of mulled wine is half full, indeed. Because many things went actually better than expected. This should not be overlooked when assessing the over-all situation. But if you are like most people, you already know this: the assessment of personal economic circumstances is far better than the evaluation of the overall economy (see Fig. 1).
Fig. 1: The economic situation in Germany is...
Macroeconomic Environment
Yes, Germany remains in a stop-and-go economy with quarters of minimal growth followed by quarters of minimal contraction. There's no sugar-coating it. But some things have gone well. First and foremost is the faster-than-expected decline in inflation. Twelve months ago, LBBW Research expected an average inflation rate in Germany of 2.8 %. Now it looks more like 2.2 %. The lower inflation also contributed to a gentle rise in real wages that had been severely hit during the peak inflation period. Therefore, the hope that private consumption will stabilize re-mains realistic, notwithstanding a weakening labor market.
The taming of the "greedy beast inflation" (in the words of Ger-man Bundesbank President Joachim Nagel) allowed the European Central Bank (ECB) to implement a series of interest rate cuts since mid-year, the latest of which was last Thursday. This, in turn, led to slightly lower long-term interest rates than we had expected a year ago. This helped the housing market in Germany, which shows slightly rising prices for the first time since the beginning of the hiking cycle in 2022. Despite all the adversities, the year went particularly well for shareholders. In the LBBW’s 2024 annual outlook, we had predicted that the German stock index DAX would end the year at 18,000 points. You know the current level! It’s well above 20,000 at the time of writing!
Equally positive: the continuously increasing compliance burden due to regulatory requirements in Germany was halted in 2024. That is a promising start for reining in red tape.
Energy Markets
Energy prices continued to decline throughout 2024. The whole-sale price for gas was significantly below pre-war levels every day of the year. Electricity prices also fell further (see Fig. 2). At the same time, Germany set a new record in expanding wind energy capacity. If these aren’t reasons to celebrate, what is?
Fig. 2: Wholesale prices electricity (avg., €/MWh)
New Beginnings
Shortly before the end of the year, we received three more pieces of good news: the dictator in Damascus has fallen – this could bring new hope to nearly a million Syrians living in Germany. And suddenly, it’s happening: the European Union signed the Mercosur agreement after a quarter-century of negotiations. And since Sunday, the Frankfurt-Mannheim core rail artery is operational again. The major renovation was completed on time and within budget. German railways can still deliver. Hallelujah!
And last but not least, the snap elections in Germany are opening new perspectives. The days of the strict debt brake seem numbered, with green shoots of hope for a reform offensive. With this in mind, I conclude the last column of this year and wish you a blessed Christmas and a happy and even better New Year!
This publication is addressed exclusively at recipients in the EU, Switzerland, Liechtenstein and the United Kingdom. This report is not being distributed by LBBW to any person in the United States and LBBW does not intend to solicit any person in the United States. LBBW is under the supervision of the European Central Bank (ECB), Sonnemannstraße 22, 60314 Frankfurt/Main (Ger many) and the German Federal Financial Supervisory Authority (BaFin), Graurheindorfer Str. 108, 53117 Bonn (Ger many) / Marie-Curie-Str. 24-28, 60439 Frankfurt/Main (Germany). This publication is based on generally available sources which we are not able to verify but which we believe to be reliable. Nevertheless, we assume no liability for the accuracy and completeness of this publication. It conveys our non-binding opinion of the market and the products at the time of the editorial deadline, irrespective of any own holdings in these products. This publication does not replace individual advice. It serves only for informational purposes and should not be seen as an offer or request for a purchase or sale. For additional, more timely in-formation on concrete investment options and for individual investment advice, please contact your investment advisor. We retain the right to change the opinions expressed herein at any time and without prior notice. Moreover, we retain the right not to update this information or to stop such updates entirely without prior notice. Past performance, simulations and forecasts shown or described in this publication do not constitute a reliable indicator of future performance. The acceptance of provided research services by a securities services company can qualify as a benefit in supervisory law terms. In these cases LBBW assumes that the benefit is intended to improve the quality of the relevant service for the customer of the benefit recipient. Additional Disclaimer for recipients in the United Kingdom: Authorised and regulated by the European Central Bank (ECB), Sonnemannstraße 22, 60314 Frankfurt/Main (Germany) and the German Federal Financial Supervisory Authority (BaFin), Graurheindorfer Str. 108, 53117 Bonn (Germany) / Marie-Curie-Str. 24-28, 60439 Frankfurt/Main (Germany). Deemed authorised by the Prudential Regulation Authority. Subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority. Details of the Temporary Permissions Regime, which allows EEA-based firms to operate in the UK for a limited period while seeking full authorisation, are available on the Financial Conduct Authority’s website.
